Confidentiality and Post Employment Obligations

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.

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