March 9, 2019

Taking up your former employer's business opportunities after resigning

Photo by Azamat Zhanisov on Unsplash

Taking up your former employer’s business opportunities after resigning

Updated: 6 January 2020

You’ll likely have access to business connections and opportunities after working with a company for some time, especially as a director with access to key information.

So should you make use of the contacts and opportunities?

Here’s what you need to know based on a court decision.

The case we’re going to look at is Southern Real Estate Pty Ltd v Dellow [2003].

While it is from 2003, it’s still cited in decisions as recent as 2018 like Advanced Fuels Technology v Blythe & Ors (2018). 

Key principles

So, if you are thinking about pursuing business opportunities, consider these key principles from the Southern Real Estate case: 

1. Best interests of the company

Directors have both statutory and fiduciary duties.

Directors must act in the best interests of the company and not promote their own interests or the private interests of others.

2. Planning for your resignation

You can't act against the company’s interests with a view to resignation and involvement in a competing business. This is a clear breach of both statutory and fiduciary duties, even if those steps involve no misuse of confidential information.

3. Director’s statutory and fiduciary duties continue

The statutory and fiduciary duties of directors don’t simply end at the point of resignation. 

But, there is uncertainty as to when a former director might properly begin to compete with the company.

However, here’s what we do know:

If a former director secretly prepares to compete with the company right after resignation, and does so, there is no need to determine at when director commenced a competing business - there's a clear breach of fiduciary duties.

These principles are important to learn because of a myth about the lack of a restraint or an employment contract for that matter.

Number #1 myth - no employment contract or no restraint = no restraint

The myth - if there’s no restraint in an employment contract the employer can’t take action against you. 

Now, it's a myth because we know if you are a director, you have fiduciary duties.

And if you are an employee, you have a duty not to use your position (section 182 Corporations Act) or information (section 183 of the Corporations Act) to gain an advantage or harm your former employer.

We know this because of Advanced Fuels Technology v Blythe & Ors [2018] (AFT), which we discussed in Director and employee duties after resigning from an Australian company.

In the AFT case - there was no restraint in an employment contract, but the director and an employee were accused of breaching their duties under the corporations Act 2001.

Key take aways

If you are a director or officer, don’t plan your exit while you are working for a company.

If you are an employee, don't use information you gained from your employer to set up a competing business (regardless of whether you do or don't have an employment contract or post-employment restraint in one).

Also - if you have made a mistake, get good legal advice before you reply to any letter telling you to stop competing; commonly known as a cease and desist letter.

Do you have questions or comments about taking up business opportunities after employment? Be sure to leave them below.

About the author 

Vivian Michael

As founder and lawyer at Michael Law Group, Vivian advises Australia's top entrepreneurs on business and employment matters. Clients benefit from Vivian's commercially focussed and pragmatic legal advice, business experience, and commitment to deliver the best quality business legal services to her clients.

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