Independent Contractors

Independent Contractors

Independent Contractors

A recent Federal Court decision in the case of SBA Music Pty Ltd v Hall (No 3) [2015] outlines the legal avenues available to a company where an independent contractor misuses confidential information, or diverts business away from the company for their own benefit. These avenues are also available where an independent contractor breaches any of the other fiduciary duties owed to a company.

SBA Music Pty Ltd and SBA Solutions Pty Ltd (SBA) conduct a business that provides music ‘solutions’ to retail stores and other businesses. Mr Hall was a senior manager for both SBA Music and SBA Solutions following the year 2000. In 2013, SBA commenced proceedings against Mr Hall alleging that while he was contracted by SBA, he directed business opportunities away from SBA and towards himself and other businesses controlled by him.

During proceedings, the Court was satisfied that the significant autonomy accorded to Mr Hall and his influence in business decisions meant that he was a ‘shadow’ director of SBA. Therefore 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 SBA, or to profit from his position with SBA. The Court found that these duties are more likely to be implied where the person engaged as an independent contractor occupies a position akin to an employee.

In the aftermath, Mr Hall was ordered to pay more than $2 million in compensation to SBA. Furthermore, in protection of SBA’s ongoing interests, he was also restrained from using any documents in his control that he had obtained as a result of his engagement with SBA and was ordered to deliver these documents to SBA’s lawyers.

This case serves as a reminder that an independent contractor can be found to owe fiduciary (legal or ethical) duties to companies they provide services to, despite not being an employee of the company. This is particularly important if, in the case of Mr Hall, the contractor is in a position of authority and/or has access to confidential company information. Breaches in these duties can be grounds for the contract to be terminated or legal matters to be pursued against the contractor.

If you have found yourself in a similar position to this matter or you would simply like more information on the legal avenues that a company can take over breaches of contracts, feel free to contact our firm on litigation@hatzis.com.au or call 07 3345 4388.

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