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Fair Work upholds decision to dismiss for IP disclosure – Employee Rights/ Labour Relations



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A recent decision of the Fair Work Commission to uphold the
dismissal under the Small Business Fair Dismissal Code highlights
the value to business of ensuring employment agreements include
important intellectual property protections.

In August 2021 Amplified AI Pty Ltd (AAI) dismissed its Head of
Design, James Mansfield, for breach of confidentiality obligations
and infringement of its intellectual property
(IP). In the decision in James Mark Mansfield
v Amplified AI Pty Limited [2021]
FWC 6702 (30 December 2021)
the Commission upheld the dismissal under the Small Business
Fair Dismissal Code 2011.

The background

Upon his engagement with AAI, Mr Mansfield signed both an
employment agreement, and a confidentiality and IP assignment
agreement, requiring him to protect all aspects of AAI’s
intellectual property and inventions, and not disclose any of the
IP without prior written consent of AAI. The confidentiality
agreement provided an opportunity for Mr Mansfield to declare and
retain the rights to any IP he had previously developed prior to
his employment (though none was declared), otherwise all IP created
during the course of employment would be owned by AAI.

AAI is a technology company that utilises artificial
intelligence to search and compare vast numbers of patent records,
allowing its clients to streamline research and prior art reports
thereby creating efficiencies in innovation. Mr Mansfield’s
duties included developing AAI’s visual branding and software
design systems, allowing him access to AAI’s trade secrets and
proprietary information that was at all times only accessible by
AAI employees.

During his employment Mr Mansfield created a design system for
the benefit of AAI. In August 2021, AAI discovered Mr Mansfield had
created and publicly released an open source design system very
similar to the AAI system. It was later discovered he used his work
computer to create the open source system, and that it was freely
duplicated more than 450 times by third party users. He also
publicly released confidential features of another AAI program
still under development.

AAI quickly investigated the disclosures and raised the
allegations with Mr Mansfield, however shortly after terminated Mr
Mansfield’s employment without notice (a summary dismissal). Mr
Mansfield made an application to the Fair Work Commission that his
dismissal was unfair. Relief for unfair dismissal is usually
granted if the dismissal was harsh, unjust or unreasonable, however
employers can rely on the Small Business Unfair Dismissal Code
2011
(Code) as justification of the dismissal
if certain criteria apply. AAI relied on the Code in defending the
summary dismissal.

Dismissals under the Code

A dismissal is consistent with the Code if the employer is a
small business employer, and the employer complied with the Code in
relation to the dismissal A small business employer is one that
employs fewer than 15 employees at the relevant time. In relation
to summary dismissal, the Code relevantly provides:

‘It is fair for an employer to dismiss an employee
without notice or warning when the employer believes on reasonable
grounds that the employee’s conduct is sufficiently serious to
justify immediate dismissal. Serious misconduct includes theft,
fraud, violence and serious breaches of occupational health and
safety procedures…’

A copy of the Code is available
here
.

The Decision

Deputy President Masson of the Fair Work Commission considered
previous case law in analysing whether AAI complied with the Code
in dismissing Mr Mansfield. Determining compliance with the Code
involves consideration of a two-step test, being:

  1. whether the employer believed the conduct was ‘sufficiently
    serious to justify immediate dismissal’; and

  2. whether the employer’s belief was based on reasonable
    grounds.

DP Masson found AAI did hold at least a subjective belief that
Mr Mansfield’s conduct was serious enough to justify the
summary dismissal, based on AAI’s thorough investigation of the
conduct in the days leading up to the dismissal and the legal
advice it had obtained. That belief was reasonable in circumstances
where Mr Mansfield publicly disclosed an infringing version of the
AAI design system and details of its soon to be released new
product in breach of the employment and confidentiality agreements.
It was acknowledged a reasonable person would likely come to the
conclusion that the infringing system clearly resembled the AAI
system, based on the ‘overwhelming visual similarity’ of
the design systems and coding.

DP Masson confirmed that while the Code lists certain examples
of serious misconduct, this is not considered an exhaustive list.
Serious misconduct is further defined in the Fair Work
Regulations 2009
to mean:

  1. wilful or deliberate behaviour by an employee that is
    inconsistent with the continuation of the contract of employment;
    and

  2. conduct that causes serious and imminent risk to the health
    or safety of a person or the reputation, viability or profitability
    of the employer’s business.

Mr Mansfield’s conduct was held to be wilful or deliberate
and inconsistent with the employment contracts, and to have caused
serious and imminent risk to AAI. The summary dismissal was
consistent with the Code and Mr Mansfield’s application for an
unfair dismissal remedy denied.

Lessons for employers

In most cases the common law can protect IP created by employees
in the course of employment, however this decision highlights the
benefit for all businesses to protect their IP by ensuring
employees have executed adequately drafted employment
agreements.

Small businesses in particular cannot afford to have their IP
walk out the door. The Code provides some relief for small business
employers seeking to terminate employees, however employers must
ensure their own conduct complies with the Code.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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