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Confidentiality and Post Employment Obligations

BIOMETRIC DATA AND PRIVACY IN THE WORKPLACE

Employers are not always aware of their obligations in relation to privacy in the workplace. The invasion of employee privacy can occur in a number of different ways including through records and information, physical and electronic surveillance and monitoring.

From a company perspective, the advancement of digital workplaces and technology has increased the amount of information employers can access about their employees. It is now also becoming more common for organisations to use biometric templates, for example to use your fingerprint to sign into work. Interestingly, the decision of Lee v Superior Wood Pty Ltd [2019] FWCFC 2946 provides insight on the extent to which an employer can request personal data in this regard.

Accordingly, in this week’s article we discuss the general principles of privacy in the workplace and the Fair Work Commission’s interesting interpretation of the Privacy Act 1988 (Cth) and Australian Privacy principles.

Privacy Act 1988

The Privacy Act 1988 (Cth) (“Privacy Act”) applies to federal government agencies as well as private sector organisations including bodies corporate who use or disclose personal information in the course of carrying on a business. In March 2014, the Privacy Act was amended to introduce thirteen legally binding Australian Privacy Principles (“APP”) which apply to personal information held by Australian government agencies and most Australian companies. Worthy of note is that personal information handled by a private sector employer is exempt from the APP if it is directly relates to:

· a current or former employment relationship; or

· an employee record relating to the individual employee concerned.

“Employee record” refers to a record of personal information relating to the employment of a person, such as information about the employee’s:

· health;

· engagement, training, disciplining or resignation;

· terms and conditions of employment;

· personal and emergency contact details;

· performance or conduct; or

· taxation, banking or superannuation affairs.

However, the exemption does not include information otherwise collected about candidates when determining to offer employment. In this respect, employers must ensure that any personal or sensitive information collected about a prospective employee is not used unless the

employee consents and the information is reasonably necessary for one or more of the entity’s functions or activities. In addition, employers must ensure that the means of collecting such information is only by lawful and fair means. In this regard, the employer must act in accordance with the APP.

Jeremy Lee v Superior Wood Pty Ltd

The recent decision of Lee v Superior Wood Pty Ltd [2019] FWCFC 2946 demonstrates the importance of understanding and complying with privacy obligations and how they interact with the rights and obligations of employees.

Mr Jeremy Lee was employed at Superior Wood for over 3 years before he was dismissed for failing to comply with the company’s Site Attendance Policy (“Policy”). The Policy required employees to use newly introduced fingerprint scanners to sign on and off the work site.

Mr Lee refused to provide his fingerprint for the purposes of signing on and off the worksite, raising concerns about the control of his biometric data and the inability for Superior Wood to guarantee no third party would be provided access or use of the data once stored electronically.

Superior Wood attempted to discuss his concerns with him and warned that a continued failure to follow the policy would result in his employment being terminated. Mr Lee again refused to sign in with his fingerprint and was dismissed as a result. Mr Lee subsequently brought an unfair dismissal application.

At first instance, the Fair Work Commission found that the Policy was not unjust or unreasonable because, amongst other things, Superior Wood had the right to require employees to comply with the policy and refusal to comply after adequate warning would not render any dismissal invalid.

The Commissioner also considered the Privacy Act 1988 and found that although biometric data is ‘sensitive information’ for the purposes of the Privacy Act 1988, it was reasonably necessary to collect the information in accordance with the Australian Privacy Principle (“APP”) 3.3.

The Commissioner noted that Mr Lee was entitled to withhold his consent, however in doing so, meant that he failed to meet a reasonable request to implement a fair and reasonable workplace policy. Accordingly, it was found in all the circumstances the dismissal was valid.

Appeal Decision

Mr Lee was granted permission to appeal the decision to the Full Bench of the Fair Work Commission. The Full Bench overturned the Commission’s decision, finding that there was no valid reason for the termination. Relevantly, the Full Bench noted the below:

· On a strict reading of Mr Lee’s employment contract, Mr Lee was only bound by any policies and procedures in place at the time of entry into the contract. As the Policy came into existence following Mr Lee commencing employment, the Fair Work Commission was not satisfied that compliance with the Policy was a term of Mr Lee’s employment.

· It was found that biometric templates are considered ‘sensitive information’ under the Privacy Act. APP 3 states that an entity cannot collect an individual’s sensitive information without their consent. The Full Bench ruled that ‘a necessary counterpart to a right to consent to a thing is a right to refuse it’. Accordingly, a direction to a person to give consent would be considered unreasonable and not a valid reason for dismissal.

· Section 7B(3) of the Privacy Act contains an exemption from an employer’s requirement to comply with the APPs in regards to an employee record held by the company and relating to the individual directly related to a current or former employment relationship. However, the Full Bench did not agree that the fingerprint scanners fell under the employee records exemption because the exemption applies only to sensitive information that has been created or is within the employer’s custody or control. In this case, the employer was only at the stage of soliciting the sensitive information, it had not in fact collected the information.

Lessons for Employers

With new and emerging technology being utilised in the workplace, this decision is an important reminder for employers to ensure that data collection in the workplace is only used if necessary and is carried out in compliance with Privacy legislation and employers are having regard to privacy concerns and employee consent.

We suggest employers should:

· Ensure that employment contracts are drafted to allow the organisation to gather personal information with consent of the employee and make provision for changes to the employer policies.

· Ensure you understand your obligations under the privacy laws and ensure human resources or relevant managers are provided training to prevent potential breaches, and ensure your company practices operate efficiently.

· Any workplace policy that is introduced should be distributed to each employee and the business should provide training on the policy. It is also important to continue to review and update your policies to ensure they are current and applicable to your business and evolving technologies.

· For the avoidance of doubt, we suggest obtaining legal advice to ensure your privacy practices are up to date and there are suitable workplace policies to cover these issues.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to your obligations under privacy laws, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Protecting the business when executives leave

The importance of the Senior Executives team for any business cannot be underestimated. They are ultimately responsible for the culture, performance and success of the business. However, what happens when a senior executive leaves the business. Have you considered how this may impact the business? What are the matters that any responsible business should consider in circumstances where a senior executive leaves?

Following on from our last article in relation to how to motivate senior executives, in this week’s article, we look at the factors an employer should consider ensuring the business is protected when senior employees wish to resign, or the business chooses to remove them.

There are many issues that should be considered when a senior member of the organisation leaves. Unfortunately, many of these matters should be properly considered way before a decision is made to either terminate the relevant employee, or before the employee’s terms of resignation are accepted. In fact, I would go further and say that prudent employers should be holding regular catch-ups with the senior executive team, to ensure that if there is any apprehension someone may be considering leaving, that this is not news when it occurs, and if they are vital, that the reasons for the move are addressed and perhaps the departure avoided. In any event if this does not occur at least the following should be considered:

  • How will the departure affect the operation of the business and what must be done to manage this;
  • Why the person is leaving and whether the issues affect others in the business and especially in the Executive’s team;
  • The level of knowledge shared across the team about the matters dealt with by the Executive and how this will be managed;
  • The timing of the departure;
  • The messaging regarding the departure and its effect on both the departing employee and the rest of the business;
  • The legal requirement, which we discuss more fully below.

One of the most important protections for any business is an appropriate contract of employment. It should provide for appropriate notice periods, which is vital to ensure the business can properly plan and manage a departure, garden leave clauses, and otherwise clearly identifies the rights and obligations of both parties. In particular, in addition to the standard clauses, an employment contract for an executive should include the following:

Notice Period

Notice of termination clauses sets out the amount of notice the employee and the business must provide before the employment relationship may terminate.

It is crucial that the notice clause sets out the notice that both the employer and the employee must provide so that each party knows exactly what to expect from the other.

In circumstances where a contract does not include an express term setting out the notice period, the courts will imply a term of “reasonable notice”. Reasonable notice will be determined on a range of factors such as age, length of service, time it would likely take for the employee to obtain commensurate employment, qualifications and so on. Accordingly, it may be found that reasonable notice is substantially more than the business was prepared to provide. For senior executives who have been employed for considerable periods of time, reasonable notice could be as much as 12 months.

An appropriate notice period can also act as an effective restraint of trade, as it will prevent an employee from starting with a competitor during that period. It is for these reasons that notice periods for senior executives are often more than the standard one month. It is also important that the contract allows for the payment of notice in lieu of the employee working the notice. If this is not the case, but the employer actually wants the employee to leave immediately, without the relevant clause allowing this, there may be an argument that doing so is a breach of the contract.

Garden Leave

A garden leave clause allows the business to isolate the employee from their business while having them remain employed. During the garden leave period, the employee remains an employee of the business and as such, has the same obligations and duties to the business as any other employee, however the employee is not required to attend for work. In addition, other restrictions can be imposed including that they have no direct contact with clients, suppliers and/or access to confidential information.

Garden leave can therefore be a great way of restraining an employee. For example, if your business suspects an employee has resigned to join a competitor it is unlikely the business will want to make a payment in lieu of notice as that would simply bring their termination date forward, meaning the employee could start with the competitor even sooner. Placing the employee on garden leave, ensure they are unable to commence with the new employer or compete with the business for the notice period, but allows them nonetheless to be removed from the operation of the business.

Garden leave clauses also allow an employer to retain the knowledge of the employee for a transition period, but not necessarily have the employee attend for work. This may be invaluable in transitioning another person into the role or managing the departure.

It is important to understand that there is no general right to put an employee on garden leave and as such, a properly drafted clause should be included in the employment contract to allow the business to do so.

Restraints of Trade

Senior executives are usually the repository of the business’s knowledge and confidential information, not to mention customer connections and goodwill. When these employees leave, they create a substantial risk to the business. Well drafted post-employment contractual restraints can be an extremely useful tool to protect the business from the impact of former employees using this knowledge and connections for the benefit of others.

It is critical that a restraint of trade clause is carefully drafted to ensure that it is reasonable and enforceable. In this regard, the legal position is that post-employment restraints will be enforced if the employer seeking to enforce the restraint is able to show that the restraint is reasonable and necessary to protect the employer’s legitimate business interest.

Without appropriate restraint clauses, there is very little an ex-employer can do to prevent an employee from competing. The same observation can be made for the protection of confidential information. Unless the contract contains an appropriate clause dealing with the protection of confidentiality, the employer will need to rely on the common law which is very limited.

Termination Payments

It is not unusual in circumstances where the employment of executive employees occurs, to find that this creates significant disputation over the quantum of the termination payments, entitlement to bonuses, share options and other incentive payments. The contract of employment should make clear what payments will be made to an employee in these circumstances, and how discretionary benefits will be treated.

Lastly, in circumstances where a business may terminate an executive employee and is considering a termination payment, it is important to ensure the business does not breach its obligations under the Corporations Act 2000 (Cth). Specifically, the Corporations Act places limits on the quantum of termination benefits payable to relevant executives. For executives captured by these provisions, unless the business has obtained shareholder approval prior to the payment being made, the termination payment cannot be greater than the executive’s base remuneration in the preceding 12 months.

If you require assistance with drafting an executive employment contract, restraint provisions or require general employment law related advice, please feel free to contact our office.
This alert is not intended to constitute, and should not be treated as, legal advice.

The Costs of Knowingly Misusing Your Competitors’ Confidential Information

It is unusual for us to write a case note on one particular case, but the recent High court decision in Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited [2018] HCA 43 (10 October 2018) (“Ancient Order of Foresters”), merits such an article.

Is it acceptable for an employee to approach the clients and connections of their previous employer for the benefit of a new employer? The answer to this question depends on a number of matters including whether the employee is subject to restraints preventing such conduct, whether the approaches to the clients occurs before or after the employee leaves the employment and whether the employee uses their old employer’s confidential information. In many of our previous articles, we have discussed the enforceability of restraints of trade and the protection of confidential information. It is accepted that if the employee is bound by post-employment obligations prohibiting solicitation or competition and the restraint is reasonable and does no more than protect a legitimate business interest, then it will be enforceable. It is also clear that unless the employee is bound by a restraint of trade obligation or other contractual obligation regarding confidentiality, it is difficult if not impossible to prevent an ex-employee from competing with their old employer or in fact soliciting their clients. However, these actions can only be lawful if the employee does not breach its fiduciary duties owed to their employer or any obligations of confidentiality imposed by the common law and the Corporations Act 2001 (Cth), on employees.

Even in the absence of enforceable restraint of trade provisions or confidentiality clauses in a contract of employment, employees owe fiduciary duties to their employer. As such, they are not able to use their employer’s confidential information and business opportunities for their own benefit (or for the benefit of a third party) to the detriment of their employer, while still employees. If they do, the employer can sue them for damages or what is known as an account of profits. Essentially this means the ex-employer can claim all of the proceeds received by the employee as a result of their breaches. But what if the new employer, who has reaped the benefit of the employee’s wrongdoing? The answer is simple – if the new employer knowingly took advantage of the employee’s breaches so as to induce such breaches then it too can be liable to the old employer. These were the circumstances of the decision in Ancient Order of Foresters. The matter went all the way to the High Court, and the Court determined that Ancient Order of Foresters was liable to pay Lifeplan $14,838,063 as an account of profits of the entire capital value of its business. The High court held that Ancient Order of Foresters had indeed induced breaches of fiduciary duties owed by two former employees of Lifeplan and should therefore be equally liable to Lifeplan.

Facts and Circumstances

The facts of the case are a useful illustration of the manner in which a new employer may be implicated in the wrongdoing of its employees and pay heavily for doing so. Mr Woff and Mr Corby were employed by Lifeplan in management positions. In 2010 they approached Ancient Order of Foresters with a plan to divert the business of Lifeplan to it. Both Lifeplan and Ancient Order of Foresters sold funeral products by providing investment products to meet the cost of pre-arranged funerals. Mr Woff and Ms Corby had very good relations with Funeral Directors through whom the products were promoted. These directors were clients of Foresters. Mr Woff and Mr Corby created a 5 year business plan noting the details of the plan using confidential information belonging to Lifeplan. They provided the business plan to Ancient Order of Foresters for the purposes of securing their employment, with a view to carrying out the plan.  They took these steps while still employed by Lifeplan. Ancient Order of Foresters at two separate Board meetings considered the 5-year business plan and accepted the proposal. Mr Woff and Mr Corby then resigned from Lifeplan and commenced employment with Ancient Order of Foresters and commenced securing the business that was previously Lifeplan’s for the benefit of Ancient Order of Foresters.

Interestingly, when the matter was originally heard, the Court determined that no orders should be made against Ancient Order of Foresters but rather only against the two former employees of Lifeplan. Lifeplan appealed and the Court of Appeal found that there should be an order made against Ancient Order of foresters but only for the profits it had received over the 5-year period. Both parties then appealed this decision to the High Court. The High Court concluded that given Ancient Order of foresters knowingly induced the breaches by Mr Woff and Mr Corby, and as a result reaped the benefit to the significant detriment of Lifeplan, it was liable for the entire capital value of the business it acquired as a result.

Lessons for Employers

In light of the High Court’s decision in Ancient Order of Foresters, we recommend employers:

  • take care to ensure new employees are not bound by enforceable restraints;
  • take care to ensure new employees do not misuse confidential information of ex-employers for their benefit or that of their new employer;
  • make clear in their contracts of employment that employees warrant they are able to accept employment and are not bound by enforceable restraints to a previous employer; and
  • not be dismissive of claims by ex-employers regarding inappropriate conduct of their previous employees.

As the High Court has clearly demonstrated, the cost of getting this wrong can be significant.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

CAN INDEPENDENT CONTRACTORS BE RESTRAINED FROM SOLICITING AND COMPETING WITH THEIR PRINCIPAL?

When an employee or independent contractor leaves a business, they have the potential to significantly damage the business by misusing confidential information and client relationships. To prevent this, many businesses utilise restraints and confidentiality clauses within their employment contracts and independent contractor agreements.

A restraint of trade clause attempts to prevent an employee and/or independent contractor from engaging in competitive activities which may adversely affect the business. However, given that independent contractors are engaged to provide services on an independent basis, the ability to restrain them from working for competitors is problematic as it places fetters on the very independence that marks a contractor relationship.

As such, many businesses are unsure how to properly protect their business interests from competition by independent contractors engaged by the business. In this article, we look at whether companies can safeguard themselves from independent contractors misusing their confidential information and discuss a recent decision handed down by the NSW Court of Appeal on this key issue.

Restraint of Trade Principles

The general law considers restraint of trade clauses unenforceable unless the restraints are reasonable and necessary to protect the legitimate interest of the business. The first hurdle for a business which is trying to enforce a restraint is the legitimacy of the interest that the business seeks to protect. A business is not entitled to merely stop others from competing. In order to determine whether a restraint is reasonable, the court will consider the duration of the restraint, and its geographical operation. Restraints that do not meet the test of “reasonableness” may be struck out by the Courts. However, it is worthy to note that in NSW as a result of the Restraints of Trade Act 1976 (NSW), an NSW Court does not have to be bound by the contractual clause, but can decide for itself what would be reasonable and amend the clause accordingly.

As most people understand, restraints are designed to protect the legitimate interest and goodwill of the business. However, it can become more complex when dealing with restraints contained within independent contractor agreements as the goodwill and/or interests of the business can be hard to distinguish from the contractor’s own business. This concept was considered in a recent Court of Appeal decision.

Recent Caselaw

In Isaac v Dargan Financial Pty Ltd [2018] NSWCA 163 the Court of Appeal considered whether a business could restrain an independent contractor from disclosing confidential information and soliciting and interfering with the principal’s client relationships.

Mr Isaac was engaged by Dargan Financial Pty Ltd (“Dargan”) trading as Home Loan Expert (“HLE”) as a sub-originator pursuant to a sub-originating agreement (“the Agreement”) which prohibited him from using HLE’s confidential information including its client lists. The Agreement also contained an 18-month post-termination restraint clause which prohibited Mr Isaac from soliciting, canvassing, approaching or accepting any approach from any person who was at any time in the 24 months prior to the termination of the Agreement a client of HLE.

The Agreement was terminated by the parties by mutual consent. Shortly after the termination of the Agreement, Mr Isaac commenced work for RAMS Financial Group and acted for nine persons who had existing loans with Dargan. As a result, Dargan commenced proceedings against Mr Isaac for breaching the contractual confidentiality provisions and breaching an equitable obligation of confidence by using and retaining a list of Dargan’s clients, and a breach of the non-solicitation restraint and non-interference restraint by approaching and accepting approaches from Dargan’s clients.

Mr Isaac admitted to retaining and using the list of Dargan’s clients, soliciting clients of Dargan and accepting approaches from clients of Dargan while employed by RAMS. However, Mr Isaac argued that certain client list had entered the public domain by its disclosure in open court and that the restraints were unreasonable and thus unenforceable.

At first instance, the primary judge upheld Dargan’s claim. His Honour made orders permanently restraining Mr Isaac from disclosing or using Dargan’s client list, and restrained Mr Isaac in relation to his restraints. His Honour also ordered that Mr Isaac pay Dargan approximately $66,030 in damages and Dargan’s costs of the proceedings.

Mr Isaac appealed this decision.  The Court of Appeal confirmed the principles in relation to restraints and confirmed that the principles apply to the relationship between contractor and principal.

However, the Court of Appeal found that Mr Isaac had not breached the non-interference restraint mainly as a result of insufficient evidence. It also found that there was no utility in making orders regarding the maintenance of confidentiality of Dargan’s client lists as Dargan had allowed the list to be tendered in open court and had as a result become part of the public domain. However, the remaining issue as to whether the non-solicitation restraint was reasonable and enforceable was upheld.

In particular, the Court of Appeal considered the question of whether there was a difference between protecting Dargan’s legitimate interests and Mr Isaac’s business as an independent contractor. It was held that Dargan had a legitimate commercial interest in protecting its customer connections and confidential information in relation to its clients, notwithstanding the substantial involvement of Mr Isaac as a contractor with the clients with whom he dealt.  Ultimately, it was held that the client relationships remained with Dargan and Dargan held a level of control over the clients. The Court of Appeal also considered whether the restraint period was reasonable. In this regard, it was held that the 18-month restraint was found to be reasonable considering the specific industry in question.

Lessons for Businesses

It is crucial for businesses to ensure they are appropriately protecting their business interests and understand how to go about doing this. Specifically, when engaging independent contractors, ensure your business takes the following steps to properly protect your business’ goodwill and/or interests:

  • Ensure there is an appropriate up to date independent contractor agreement in place;
  • Ensure the independent contractor agreement contains well drafted and reasonable restraint of trade and confidentiality clauses taking into account the nature of the relationship;
  • Ensure that the restraint of trade clauses sufficiently protect the company’s legitimate interests and are tailored to suit the individual circumstances;
  • Ensure that if the independent contractor is engaged within a client-facing role, the business retains a level of control of the client relationships including any clients which the independent contractor brings to the business;
  • It is also important to note that the above decision highlighted the fact the contractor agreement did not define the term ‘confidential information’ which meant that Dargan had not specified what information it considered to be confidential. In this regard, it is vital that any independent contractor agreement (or any employment agreement for that matter) contains proper definitions that reflect your business environment; and
  • Ensure that confidential information is kept confidential and not inadvertently disclosed.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

The $6 million Cost of Misusing Confidential Information

A recent decision of the Appellate Division of the Federal Court of Australia has recently decided to award over $6 million dollars in damages to an ex-employer in relation to the misuse of its confidential information by two former employees. What is most interesting about this decision is the fact that the order was imposed on the new employer who had benefited from the breach. The decision illustrates that in circumstances where a new employer turns a blind eye to the wrongdoing of its new employees, it may find itself embroiled in costly litigation with possible significant financial consequences.

Messrs Woff and Corby were employees of Lifeplan Australia Friendly Society Ltd (“Lifeplan”) who were engaged in the business of funds management and providing services in relation to investment products, funeral bonds and pre-paid funeral plan contracts. In late 2010, both employees left the employment of Lifeplan and became employees of Ancient Order of Foresters in Victoria Friendly Society (“Foresters”). However, prior to the cessation of their employment with Lifeplan, they established a separate business named Funeral Planning Australia Pty Ltd (“FPA”). In particular, the employees used confidential information to create a business plan through their new business for Foresters. In late 2010, FPA entered into an agreement with Foresters whereby it provided promotional and marketing services to Foresters in return for the payment of a commission. The promotional and marketing services related to an investment product issued by Foresters known as funeral bonds. Lifeplan also issued funeral bonds and were a much larger competitor of Foresters. Accordingly, Lifeplan brought proceedings in the Federal Court of Australia against Messrs Woff and Corby individually, their new business (FPA) and also Foresters. Lifeplan were seeking declarations, an injunction, an order for delivery up of documents and an account of profits against each of the parties.

In the initial proceedings, Justice Besanko found that the employees’ actions amounted to a blatant breach of duty and thus had breached their contractual obligations, with respect to their duty of fidelity and good faith, but also of the confidentiality, intellectual property and technology usage. One of the employees was held to have also contravened the Corporations Act 2001 (Cth) (“Corporations Act”) through his breaches while an officer of Lifeplan. In this regard, the Court ordered the two managers to pay their former employer, Lifeplan almost $50,000 as an account of profits.

Even though at first instance Justice Besanko formed the view that Foresters were “open to” the use of the confidential information and thus had assisted in the breach, he was not satisfied that Foresters had the requisite knowledge required for the purposes of section 79 of the Corporations Act nor was there a causal link between the employees’ breaches and Foresters’ profits. As a result, Justice Besanko rejected Lifeplan’s claim for an estimated $30 million in damages based on the value of Foresters business.

Lifeplan appealed this aspect of the decision in the Full Federal Court with the decision handed down last week. The Full Court disagreed with the approach of the primary Judge and found that there could be no doubt that the board of Foresters had actual knowledge, of the taking and use, in breach of duty, of confidential information. It was held that the business plan created by the employees disclosed detailed information, some of which expressly, and plainly, came from Lifeplan’s records. The Full Court held that in relation to such information of detailed specificity and commercial importance, no honest and reasonable person, not shutting his or her eyes to the obvious, could conclude other than that the document was based on Lifeplan’s confidential information brought by the current employees of Lifeplan.

The Full Court further stated that the board members knew or ought to be taken to have known that they were being supplied with confidential business information of a competitor by the competitor’s employees and this would have commercial disadvantage to the competitor and have likely and intended commercial advantage to their company. Furthermore, the business plan made it clear that the employees were attempting to persuade the board of Foresters to make a decision to attack the business of Lifeplan for the joint future benefit of both the employees and Forester.

The Full Court was also required to consider the most appropriate approach to calculating the work of Foresters or its profits made as a result of the business plan. Lifeplan submitted that they were entitled to the value of the whole business, less any just allowances properly proved. The Full Court rejected this approach, but nonetheless found no reason why an order for the capital profit for Foresters’ competing business up to 30 June 2015 (representing four and a half years of the employees’ five year business plan) should not flow from the knowing involvement in the breaches of statutory duty. This value was assessed at $6,233,944.

Lessons for Employers

In light of this decision it is important to remember and understand both the risks posed to businesses by their former employees, and the risks in using confidential information from an employee or former employee, of a competing business. Furthermore, this landmark decision clearly demonstrates that any provable loss or damage flowing as a result of such conduct, may give rise to significant compensatory awards.

To avoid these kinds of issues, we recommend employers consider implementing the following precautionary measures:

  • Ensure your business has adequate post employment restraints and clauses that deal with confidential information in your employment contracts;
  • Implement appropriate workplace policies dealing with confidential information and intellectual property;
  • Ensure you have appropriate procedures for dealing with departing employees such as obtaining personal electronic devices and reminding employees of their contractual obligations;
  • If you are concerned that an employee may have taken confidential information, seek legal advice immediately and take urgent action to prevent the information being used or further disclosed;
  • Think twice about knowingly employing a person who may be in breach of their fiduciary and statutory duties or post-employment obligations with their former employer; and
  • Make enquiries of new employees to ensure they are not in breach of any post-employment restraints when commencing employment with you.

If you wish to discuss how to implement best practice contractual terms regarding these matters or have concerns regarding the use of confidential information by your employees, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Can an Employee be Restrained for 10 Years?

Surprising as it may seem, a Western Australian Court has accepted that a 10 year restraint may in fact be enforceable. An engineer with highly specialised skills has temporarily been barred from working with any competitors in Western Australia after the Western Australia Supreme Court determined that a 10 year restraint clause was reasonable, at least until the Court has the benefit of having a full hearing into the matter.

The defendant, Mr Cook, sold his stake in Matchtec Hydraulics in 2014, but remained an employee until his resignation in June 2016. The company was sold for $650,000 with $588,700 apportioned to goodwill. The defendant commenced work with a competing hydraulic engineering business which performed the same work in July 2016.

The new owners of Matchtec Hydraulic accused Mr Cook of soliciting customers and making disparaging remarks about the business, and the nature and quality of the products and its services. Mr Cook denied claims he had approached any of his previous customers and stated that the industry was very competitive with customers showing little loyalty. He further explained that customers awarded work according to price, reputation and the service provided.

Mr Cook admitted to paying little attention to the terms of the restraint of trade clause when accepting them, nor did he obtain independent legal advice because he had planned to live in the UK after entering the deed of restraint. He also asserted that he was not qualified to perform work outside of the hydraulic engineering industry and that a 10 year restraint was unreasonable. Nevertheless, the Court rejected Mr Cook’s claims he was unable to earn a living other than by working in the industry due to the fact he resigned prior to being approached by his new employer. Justice Tottle inferred that at the time of resignation Mr Cook must have had a degree of confidence in his ability to earn a living by some means other than in the service, repair and manufacture of hydraulic cylinders.

The common law position in Western Australia considers all contracts in restraint of trade void unless the restraint is reasonable, with the onus on the party wishing to enforce the restraint to prove reasonableness. A restraint of trade will be considered unreasonable if it provides greater protection than that which is reasonably required to give adequate protection to the person for whose benefit the restraint is imposed. In this regard, His Honour Paul Tottle expressed reservation about the reasonableness of the 10-year period, stating that it was on the other edge of what might be considered acceptable. However, Justice Tottle noted that injunctive relief was the most appropriate remedy because refusing such a remedy would deprive Devil Dog of a potentially valid contractual restraint, which formed part of the agreement. His Honour also noted that it would be difficult to pursue Mr Cook and recover damages if he moved outside of the Court’s jurisdiction. In light of the above, His Honour’s provisional assessment concluded that a prima facie case had been made out. The matter is set to be heard in April 2017 where the reasonableness of the 10 year restraint will be tested in full.

While commonly restraints of trade clauses are dismissed by most as unenforceable, this decision demonstrates that the Courts are prepared to enforce properly crafted restraint of trade clauses, particularly those imposed upon the vendor of a business. Accordingly, it is of paramount importance that restraint clauses are drafted with regard to the particular facts and circumstances of the matter and the relevant jurisdiction. It is also imperative to understand that in NSW, as a result of the Restraint of Trade Act 1976 (NSW), NSW Courts can read down a restraint clause. This means that even if the restraint period is unreasonable, the Court has the ability to decide for itself what would be reasonable and amend the clause accordingly.

In light of the above, employers should consider a number of the following to steps to protect their business interests:

  • Review current employment contracts to ensure they are up to date and include reasonable confidentiality and restraints of trade clauses, specifically for employees who have been promoted within your business or have been with your business for a long time;
  • Ensure the restraint clause sufficiently protects the company’s legitimate interests and are tailored to the circumstances;
  • Conduct exit interviews with employees and remind them of their post-employment obligations;
  • Write to high risk departing employees reminding them of their post-employment contractual obligations; and
  • If you are concerned whether an employee may be breaching their post-employment obligations, act quickly to put the employee on notice that the conduct is unacceptable and seek appropriate legal advice.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Breach of Confidentiality – Is your Business Information Safe?

Most employees will deal with some sort of confidential information belonging to their employer, during the course of their employment. Confidential information may include client or supplier lists, price information, strategic business plans, databases, details of tenders, inventions or product information and so on. As a result, employers are increasingly concerned that they protect their confidential information from misuse by employees and especially departing employees. In this article, we look at how employers can safeguard themselves from employees misusing confidential information and discuss a recent Federal Court of Australia decision on this key issue.

Employees obligations to their employer

The common law gives employers some limited protection once an employment relationship has come to an end. However apart from information which constitutes a trade secret or some form of intellectual property, confidential information in itself is not property, and what the employer may have is a right to prevent the disclosure or misuse of that information. An employee’s obligation to maintain the confidentiality of confidential information may arise from various legal sources including their employment contract, legislation, common law and equity. However a distinction must be drawn between information which is part of an employee’s own skill, experience and knowledge as opposed to the employer’s confidential information which it has a proper interest in protecting.

Contractual obligations

An employee may be prevented from using the confidential information of his or her employer during the course of employment by an implied contractual term or by an express contractual term. The implied term is a result of the implied term of fidelity owed by an employee to his employer. After the termination of employment, confidential information obtained during the employment may be protected by an implied contractual term, however as opposed to the implied term of fidelity, a term implied after termination of employment is far more restricted in its scope, and will normally only be implied to protect information that is considered a trade secret. If an employer wishes to protect a broader range of information it can only do so by way of an express contractual term. It is for this reason that written employment contracts should contain well-drafted specific confidentiality provisions relevant to your business.

Obligations found in legislation

Sections 182 and s183 of the Corporations Act 2001 (Cth) prohibits employees from improperly misusing information or improperly using their position to gain advantage for themselves or to cause detriment to the corporation. Also, a director or officer of a corporation may attract criminal liability for recklessly or dishonestly using their position and/or misusing information under section 184. However, the limits contained in the Corporations Act rely on the definition of confidential information protected at common law as part of the implied duties. As such, information that would not be considered confidential at common law will not be protected by virtue of the Corporations Law provisions.

Recent Caselaw

Recently, the Federal Court of Australia considered the case of an employee who stole confidential information from his employer in the decision of SAI Global Property Division Pty Ltd v Johnstone [2016] FCA 1333. Mr Johnstone worked as a business development manager for SAI Global, a leading provider of integrated search, settlement and conveyancing services. Mr Johnstone was employed for three months before he chose to resign and commence employment with a competitor. A few days prior to resigning from SAI Global he copied confidential computer files onto a personal USB device.

Only four days after resigning and whilst on garden leave, Mr Johnstone commenced with his new employer. In the subsequent weeks, Mr Johnstone used the information copied to ascertain which customers of SAI Global were also customers of the new employer. It is believed Mr Johnstone did this of his own volition and there was no suggestion that his new employer knew or sanctioned his conduct.

Approximately one month after his resignation, SAI Global obtained an ex parte order including for the return to it of any external storage device used by Mr Johnstone in relation to his employment with SAI Global; any desktop or laptop computer to which any such external device had been connected; and any electronic or hard copy document in Mr Johnstone’s possession, custody or control containing confidential information. SAI Global was also able to obtain an order regarding the delivery up of a laptop computer owned by the new employer and for Mr Johnstone to make an affidavit relating to such matters.

Pursuant to the order, Mr Johnstone delivered up the USB and laptop computer to SAI Global and admitted to breaching his obligations under s182 and s183 of the Corporations Act 2001 (Cth), breaching his fiduciary duties owed to SAI Global and additional breaches of his employment contract by working for a competitor during the two week notice period following his resignation.

At a subsequent contested hearing of the matter, the Court ordered:

  1. Mr Johnstone be restrained from disclosing to any person or making any use of, except where required by law, any SAI Global Confidential information.
  2. Mr Johnstone to permanently delete any electronic copy or any document in his possession, custody or control which is the property of SAI Global or any of its related bodies or that contains any SAI Global confidential information.
  3. Mr Johnstone pay SAI Global damages for breach of contract, copyright and the Corporations Act.
  4. Mr Johnstone pay costs in the amount of approximately $196,416.54 incurred by SAI Global in connection with the proceedings.

This decision serves as a reminder that employers are able seek the courts assistance in protecting its confidential information and the potentially significant consequences for employees.

In Special Broadcasting Service Corporation v Andrew Corbett [2016] NSWSC 461, Special Broadcasting Service Corporation (“SBS”) sought an interim injunction against Mr Corbett, who had resigned from his employment partway through a fixed-term contract. SBS argued that Mr Corbett had access to highly sensitive confidential information and that he should be restrained from sharing it with competitors. The court agreed that SBS had a protectable interest (the confidential information) to protect and that Mr Corbett should be barred from sharing this information with another broadcaster for the remainder of the term of the contract. As such, Justice Slattery granted an interim injunction preventing Mr Corbett from providing services to ABC or any other media organisation and from misusing SBS’s confidential information until the matter could be finally determined.

Lessons for employers

Regardless of the size of your business, employers should take all necessary steps to properly protect the business assets and confidential information. This begins with reviewing and including specific clauses in your employment contracts dealing with the protection of confidential information. Employers may consider the following:

  • Review and put in place clear confidentiality obligations in your employment contracts;
  • Consider whether you need to add a restraint of trade clause, especially for senior employees;
  • Consider whether your workplace may require workplace surveillance to monitor technology and staff. Ensure that any surveillance complies with legislation and you have workplace policy in relation to surveillance in place;
  • Ensure all employees receive appropriate workplace policy training to understand the policies and their obligations as an employee;
  • Create processes of ensuring confidential documents are labelled as “confidential” to avoid any debate about the nature of the material;
  • Remind all departing employees in writing of their obligations regarding confidential information and any post-employment restraints which apply following termination of employment; and
  • If required, place the departing employee on garden leave to further protect the business and ensure employment contracts permit this action.

In the event you believe confidential information has been taken or improperly obtained, it is strongly advisable to seek legal advice. Any delay could be costly.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law issue, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Directors Obligations to Protect Corporate Information: Confidentiality and the Use of Corporate Information

We regularly receive requests for advice from company directors and officers, of both private and publically listed entities. Whilst there are a range of separate disclosure obligations applicable to public companies and a host of duties and obligations placed on directors and other officers of corporate entities, which is far too broad to canvass within the scope of this article, we are often asked to advise on the ability of employees, offices and directors to compete with their former employer. The position is far clearer where there are existing contractual protections in the form of restraints and specific contractual confidentiality obligations. But what is the position, where there are no such contractual restrictions?

The obligations places on directors and officers are extensive and as is often the case, poorly understood. Where a breach of directors’ duties occurs, the impact can be significant for the company, its shareholders and the director concerned.

The traditional view is that directors owe fiduciary duties to the company as a whole, and in some circumstances, this can include the interests of future members. The legal duties and obligations of directors and other officers derive from the following sources:

  1. statutory duties, primarily being those contained in the Corporations Act 2001 (Cth) (“Corps Act”);
  2. common law duties;
  3. contractual duties if there is a contract of employment;
  4. a company’s constitution; and
  5. equitable duties.

Under the Corps Act, duties are owed to the relevant corporation including all shareholders (and in some cases its creditors). In very broad terms, the principal statutory duties imposed on a director of an Australian company may be summarised as follows:

  1. to exercise the degree of care and diligence that a reasonable person with the same responsibilities within the company would exercise in the company’s circumstances (section 180 of the Corps Act);
  2. to act in good faith and in the best interests of the company and for a proper purpose (section 181 of the Corps Act);
  3. to not improperly use the director’s position or information obtained as a director for the purpose of gaining an advantage for the director or any third party or to cause detriment to the company (section 183 of the Corps Act);
  4. to avoid actual or perceived conflicts between the obligations owed by the director to the company and the director’s personal interests or other duties to which the director may be subject (section 191 of the Corps Act);
  5. to keep confidential information confidential, and not to profit from advantages or business opportunities acquired in the position as a director (section 182 of the Corps Act);
  6. to prevent insolvent trading by the company (section 588G of the Corps Act); and
  7. not to acquire or dispose of company shares (or enter into agreements to do so) or procure a person to deal in company shares or communicate information that would allow another person to procure or deal in company shares (section 1043A of the Corps Act).

The duties and obligations outlined above require compliance by directors and other company officers, and civil and criminal liabilities may flow as a result of a contravention of the relevant Corps Act provisions. This applies to directors and officers who aided, abetted, counselled, procured, induced, conspired or were knowingly concerned (by act or omission) in a contravention of the Corps Act.

Each of the above duties is distinct from one another and have been well-developed by the Courts. In the employment context, however, where a director is also an employee and wishes to exit their employment it is essential that careful regard be given to the scope of the director’s surviving obligations to their former employer.

In these circumstances, amongst other obligations, a director (although this will also apply to employees generally) will be at risk of falling afoul of section 183 of the Corps Act which prevents the improper use of corporate information, if a director misuses information they acquired as a result of their position. For example, if they were to make an unauthorised disclosure or exploit the information for their benefit (or the benefit of a third party) or improperly cause detriment to the company, they may be liable for damages and penalties. It is important to note that this provision prevents the misuse of any corporate information, irrespective of whether it is confidential or not. As such, it can be far broader than a confidentiality clause contained in a contract of employment, which usually only seeks to protect confidential information. Significantly, under section 184(3) of the Corps Act, where a person obtains information because they are (or were) a director, officer or employee of a company and uses corporate information dishonestly and with the intention of gaining an advantage for themselves or causing detriment to the company (or does so recklessly as to whether the use would have this result), may be subject to criminal prosecution by the Australia Securities and Investment Commission and be liable to a fine of up to $340,000, or sent to prison for up to 5 years, or both.

A well-known example of a breach of this statutory duty arose in ASIC v Vizard [2005] 219 ALR 714, in which the Court held that Mr Vizard used corporate information obtained by reason of his position as a director of Telstra Corporation Limited (“Telstra”) to buy shares in Telstra and thereby made improper use of that information. By way of background to this case, in 2000 Mr Vizard was appointed a non-executive director of Telstra. He had also established a company called Creative Technology Investments Pty Ltd (“CTI”), of which his accountant was the sole director and shareholder. In December 1999, Brigham Pty Ltd (“Brigham”) a trustee company of CTI whose shares were beneficially owned by Mr Vizard, his wife and children, entered into a loan agreement by which it made loans to CTI from funds provided by Mr Vizard to purchase a share portfolio. The share portfolio acquired by CTI, on the instruction of Mr Vizard, included the purchasing of shares in entities for which Telstra had interests, and as such, Mr Vizard was privy to confidential information about those entities in his capacity as a director of Telstra. Accordingly, the Court held that Mr Vizard made improper use of that information by basing his decision to purchase or sell shares on the information to obtain an advantage for CTI (and through that company for Brigham, Mr Vizard and his family). In this case, the Court was satisfied that three separate breaches of section 183 of the Corps Act took place, and imposed a pecuniary penalty of $130,000 for each breach of director’s duty (a total of $390,000) and also imposed an order disqualifying Mr Vizard from managing companies for a period of 10 years.

We note that section 183 of the Corps Act applies to directors, officers and employees. However, it is most often used to prevent the misuse of information by ex-directors and officers of corporate entities. In addition to section 183, directors have equitable and fiduciary obligations to their old companies which will continue to apply after they have resigned as a director.

It is essential that directors respect, in addition to any contractual obligations regarding the maintenance of confidential information arising under a contract of employment, deed of indemnity or company policies, the statutory prohibitions on the use of information generally acquired as a director and employee. Improper use of corporate information will give the company and its shareholders, in the absence of anything further, a legitimate basis to commence proceedings to recover damages resulting from a breach.

It is fundamental for directors and officers to consider all their duties and obligations to the company upon ceasing to be employed, as the source of such obligation goes beyond the contract of employment. For employers, it is vital to ensure that employment agreements and policies contain appropriately and carefully drafted duties, confidentiality obligations and post-employment restrictive covenants to ensure the business is protected even after a director or employee ceases to be employed.

If you wish to discuss any aspect of this article or require specialist advice or assistance in relation to an employment law matter, please do not hesitate to contact us.

This alert is not intended to constitute, and should not be treated as, legal advice.

Restraint of Trade Clauses – Are they worth the paper they are written on?

One of the most frequent questions I get as an employment lawyer is “restraints of trade are not really enforceable are they?” The legal position is that restraints of trade clauses in employment contracts are void, unless reasonable, and operate to protect a legitimate business interest. Historically this was interpreted very narrowly, and most restraint clauses were not enforced by the Courts. However, that is not the case today. My advice to people who now ask me that questions is, be very, very careful if you are subject to a restraint of trade clause and you wish to breach it.

What is a restraint of trade clause?

Employers often wish to have their employees make an express contractual promise not to engage in competitive activities or to use the company’s confidential information after the termination of their employment. Most often, employers do so by requiring their employees to sign employment contracts which contain restraint of trade and confidentiality clauses.

A restraint of trade clause in an employment contract which is an outright claim for protection from competition without anything to justify such a claim will be unenforceable. However, a restraint of trade clause that does no more than protect the employer’s legitimate interests and which is reasonable will be enforced.

The competing interests that the Courts must consider when asked to enforce a restraint of trade clause are:

  • The interests of the employee in being able to earn a living using his or her legitimately obtained skill, experience and knowledge;
  • The public interest in being able to obtain the services of the employee and the freedom of trade;
  • The employer’s interest in protecting confidential information, customer connections, staff and supplier connections, which the employer has expended time, resources and money to develop.

Are restraints really enforceable?

The answer to that is yes. More and more the courts are willing to hold employees to their contractual promises and enforce restraint of trade clauses that are reasonable. So what does the court consider in determining whether to enforce a restraint?

The first question that must be answered, is what is the interest that the employer seeks to protect by having the restraint enforced, and is it a legitimate protectable interest? An employer cannot just seek to stop ex-employees from competing. To do so they must show that if the employee is allowed to compete the employer will suffer real harm to a protectable interest.

So what do the Courts consider are protectable interests?

The most important of these are confidential information and customer connections. More recently, the courts have also recognised the interest the employer has in a stable workforce, and will now enforce clauses preventing poaching of employees.

If an employer can show that it has a legitimate interest to be protected, the court will then consider whether the restraint is reasonable. In order to determine whether a restraint is reasonable, the court will consider the duration of the restraint, and its area of operation. In 2012, the Victorian Courts upheld a 3 year restraint prohibiting a junior accountant from providing services to clients of his former employer, with whom he had dealt. [1]

In NSW as a result of the Restraints of Trade Act 1976, the Court does not have to be bound by the contractual clause, but can decide for itself what would be reasonable and amend the clause accordingly.

It is certainly, now far more common that restraint periods of up to 12 months will be enforced, and in certain exceptional cases for periods longer than that.

In a case decided in April 2104, a court upheld the validity of a restraint of trade clause, restraining a senior executive for a period of 6 months from working for another advertising agency anywhere in Australia. The employee was also ordered to pay his former employer more than half a million dollars for breaching his contractual and fiduciary obligations.[2] The judge said:

It is, of course, true that the effect of the restraint would be to keep Mr Andrews out of his chosen occupation for a period, but nothing less than that would adequately protect the Company’s legitimate interest in protecting its connection with a major client.” [3]

What should employers do?

Prudent employers should take the following steps to properly protect their business goodwill:

  • Ensure their contracts of employment are up to date and have reasonable confidentiality and restraint of trade clauses;
  • Ensure that the restraint of trade clauses sufficiently protect the company’s legitimate interests and are tailored to suit the individual employee’s circumstances;
  • Conduct exit interviews with employees and remind them of their post employment obligations;
  • Write to high risk departing employees reminding them of their post-employment contractual obligations;

If there is a concern the employee may be breaching his restraint obligations, act quickly to put the employee on notice that the conduct is unacceptable.

[1] Birdanco Nominees Pty Ltd v Money [2012] VSCA 64

[2] Andrews Advertising Pty Ltd v Andrews [2014] NSWSC 318

[3] Ibid at [167 and 169]

Restraint of Trade Clauses

Restraint of Trade Clauses – Are they worth the paper they are written on?

palace_310x409One of the most frequent questions I get as an employment lawyer is “restraints of trade are not really enforceable are they?” The legal position is that restraints of trade clauses in employment contracts are void, unless reasonable, and operate to protect a legitimate business interest. Historically this was interpreted very narrowly, and most restraint clauses were not enforced by the Courts. However, that is not the case today. My advice to people who now ask me that questions is, be very, very careful if you are subject to a restraint of trade clause and you wish to breach it.

What is a restraint of trade clause?

Employers often wish to have their employees make an express contractual promise not to engage in competitive activities or to use the company’s confidential information after the termination of their employment. Most often, employers do so by requiring their employees to sign employment contracts which contain restraint of trade and confidentiality clauses.

A restraint of trade clause in an employment contract which is an outright claim for protection from competition without anything to justify such a claim will be unenforceable. However, a restraint of trade clause that does no more than protect the employer’s legitimate interests and which is reasonable will be enforced.

The competing interests that the Courts must consider when asked to enforce a restraint of trade clause are:

  • The interests of the employee in being able to earn a living using his or her legitimately obtained skill, experience and knowledge;
  • The public interest in being able to obtain the services of the employee and the freedom of trade;
  • The employer’s interest in protecting confidential information, customer connections, staff and supplier connections, which the employer has expended time, resources and money to develop.

Are restraints really enforceable?

The answer to that is yes. More and more the courts are willing to hold employees to their contractual promises and enforce restraint of trade clauses that are reasonable. So what does the court consider in determining whether to enforce a restraint?

The first question that must be answered, is what is the interest that the employer seeks to protect by having the restraint enforced, and is it a legitimate protectable interest? An employer cannot just seek to stop ex-employees from competing. To do so they must show that if the employee is allowed to compete the employer will suffer real harm to a protectable interest.

So what do the Courts consider are protectable interests?

The most important of these are confidential information and customer connections. More recently, the courts have also recognised the interest the employer has in a stable workforce, and will now enforce clauses preventing poaching of employees.

If an employer can show that it has a legitimate interest to be protected, the court will then consider whether the restraint is reasonable. In order to determine whether a restraint is reasonable, the court will consider the duration of the restraint, and its area of operation. In 2012, the Victorian Courts upheld a 3 year restraint prohibiting a junior accountant from providing services to clients of his former employer, with whom he had dealt. [1] In NSW as a result of the Restraints of Trade Act 1976, the Court does not have to be bound by the contractual clause, but can decide for itself what would be reasonable and amend the clause accordingly.

It is certainly, now far more common that restraint periods of up to 12 months will be enforced, and in certain exceptional cases for periods longer than that.

In a recent case decided in April this year, a court upheld the validity of a restraint of trade clause, restraining a senior executive for a period of 6 months from working for another advertising agency anywhere in Australia. The employee was also ordered to pay his former employer more than half a million dollars for breaching his contractual and fiduciary obligations.[2] The judge said:

“It is, of course, true that the effect of the restraint would be to keep Mr Andrews out of his chosen occupation for a period, but nothing less than that would adequately protect the Company’s legitimate interest in protecting its connection with a major client.” [3]

What should employers do?

Prudent employers should take the following steps to properly protect their business goodwill:

  • Ensure their contracts of employment are up to date and have reasonable confidentiality and restraint of trade clauses;
  • Ensure that the restraint of trade clauses sufficiently protect the company’s legitimate interests and are tailored to suit the individual employee’s circumstances;
  • Conduct exit interviews with employees and remind them of their post employment obligations;
  • Write to high risk departing employees reminding them of their post-employment       contractual obligations;
  • If there is a concern the employee may be breaching his restraint obligations, act quickly to put the employee on notice that the conduct is unacceptable.

[1] Birdanco Nominees Pty Ltd v Money [2012] VSCA 64

[2] Andrews Advertising Pty Ltd v Andrews [2014] NSWSC 318

[3] Ibid at [167 and 169]