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Monday 2nd May 2016
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Independent contractor forced to face the music to the tune of $2 million
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In today's Workplace Bulletin:
- Reminder of the consequences directors face if they breach their duties
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 | A recent decision of the Federal Court (SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079) has provided a reminder that independent contractors can be found to owe fiduciary (legal or ethical) duties to companies they provide services to. |
The case provides an example of the legal avenues that may be open to a company where an independent contractor misuses confidential information, or diverts business away from the company for their own benefit.
SBA Music and SBA Solutions (SBA) conduct a business that provides music ‘solutions’ to retail stores and other businesses. In March 2000, SBA engaged Wayne Hall as a consultant. Over the following years, Mr Hall occupied several positions with SBA as a senior manager of both SBA Music and SBA Solutions.
In 2013, SBA commenced proceedings against Hall alleging that while he was engaged by SBA he directed business opportunities away from SBA and towards himself and other businesses operated or controlled by him.
Conflict of interests
Despite Mr Hall being an independent contractor, the Federal Court found that he owed fiduciary duties to SBA, which included a duty not to place himself in a position of conflict with the interests of SBA, or to profit from his position with SBA.
The Court noted: “where reliance is placed on an independent contractor in relation to tasks of special responsibility critical to the financial and reputation wellbeing of the enterprise, such reliance and trust that it involves may cause the contractor to owe fiduciary duties”.
These duties, the Court considered, are more likely to be implied where the person engaged as an independent contractor occupies a position akin to an employer. This was found to be the case with Mr Hall as he provided a service personally as a senior manager of the Company. |
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The Court also found that even though Mr Hall was an independent contractor, he was still capable of being considered a director of the Company under theCorporations Act.
While Mr Hall had been an appointed director of SBA Music, the Court also was satisfied that the significant autonomy accorded to Mr Hall by SBA Solutions during his engagement, and the influence he had in making business decisions meant that he was also a ‘shadow’ director of that company.
The case is a reminder of the grave consequences company directors face if they are found to have breached their directors’ duties, with the court ordering Mr Hall to pay more than $2 million in compensation to SBA.
Crucially, for the protection of SBA’s ongoing interests, he was also ordered to deliver to SBA’s lawyers all documents within his possession or control that he had obtained as a result of his engagement with SBA. This included confidential information, intellectual property, information relating to business opportunities as well as information relating to customers and suppliers of SBA.
Get it right from the beginning …
Would you know how to investigate an employee, consultant or contractor you suspected was acting in a similar fashion to Mr Hall?
Or would you prefer to be able to explain clearly – and in writing – to any new hirings at your company what their fiduciary (legal or ethical) duties are to your company … before a situation eventuated?
The Portner Press Employment Law Handbook, written by Editor-in-Chief Charles Power, a partner at Holding Redlich, offers you the best legal advice … at your fingertips. It’s like having an employment lawyer on staff.
Get your copy today on an obligation-free trial and start seeing the benefits the Handbook provides, not just in this tricky area of employment contracts and investigations, but across the whole gamut of employment law.
The up-to-date advice, valuable tips and vital information in the Handbook will enable you to tackle even the most difficult employment law issues in your workplace with absolute confidence.
Regards,
Charles Power
Editor–in–Chief
Employment Law Practical Handbook
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Workplace Bulletin ISSN 1836-117X
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