Interference with Contractual Relations- Issues when poaching employees of a competitor.
By Simon Abraham
1 April 2014
Our firm recently made use of the tort of interference with contractual relations when protecting a medical centre whose doctors were approached by a rival chain of medical centres as part of an intensive attempt to induce doctors contracted to our client’s medical centre to breach their contracts and commence working for the competitor.
When does an approach to ‘poach’ a person contracted elsewhere cross the line between making a lawful offer to a potential employee or contractor compared to an unlawful interference with contractual relations?
The question strikes at the heart of our economic and legal system both of which are based upon principles of freedom of contract and freedom of choice. However, parties that freely enter contracts cannot freely breach such contracts and Courts have shown that they are prepared in some cases to provide relief against unlawful interferences with contractual relations.
The tort, known as interference with contractual relations, occurs where a third party intentionally procures or induces a party contract to breach it. The wronged party to the contract can bring a claim for damages against the third party who procured the breach.
These tensions came to light in Australia in 1996 when Australia’s domestic rugby league competition split following News Limited’s decision to set up a new rugby league franchise known as Superleague. News Limited induced rugby players with significant financial sums to walk away from contracts at existing clubs and play in the new competition. The law would usually have dealt with this situation through actions for breach of contract on the part of each of the clubs against each of the players. Instead, the Federal Court initially held that News Limited had unlawfully interfered with the contractual relations that the clubs had with their players and imposed an injunction restraining the new competition from operating.
If a third party ’wrongdoer’ is to be restrained from making approaches to others, here is what will need to be shown by the aggrieved party to rely upon the tort of interference with contractual relations:
- Knowledge on the part of the wrongdoer of a contract or the likely existence of a contract; and
- An intention by the wrongdoer to interfere with the contract; and
- Actual interference with the performance of the contract causing quantifiable damage to the aggrieved party
Recent case law has made it clear that the wrongdoer does not need to know the precise details of the contract but merely to be aware of there being at least a substantial prospect of a breach – with a decision being made by the wrongdoer to proceed in any event.
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