Employment Law – Fair Work Commission upholds decision to dismiss for IP disclosure
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 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  FWC 6702 (30 December 2021) the Commission upheld the dismissal under the Small Business Fair Dismissal Code 2011.
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, otherwise all IP created during the course of employment would be owned by AAI.
During his employment Mr Mansfield created a design system for the benefit of AAI, a technology company that utilises artificial intelligence to search and compare vast numbers of patent records. 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 provides that:
‘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…‘
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:
- whether the employer believed the conduct was ‘sufficiently serious to justify immediate dismissal’; and
- whether the employer’s belief was based on reasonable grounds.
The Commission 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.
The Commission confirmed that while the Small Business Fair Dismissal Code 2011 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:
- wilful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment; and
- 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.