Employers must protect their confidential information with better contracts

A workplace lawyer has warned employers must pay more attention to confidentiality clauses in employment contracts or risk being insufficiently protected when former employees disclose valuable information and knowledge about their companies.

A workplace lawyer has warned employers must pay more attention to confidentiality clauses in employment contracts or risk being insufficiently protected when former employees disclose valuable information and knowledge about their companies.

Shana Schreier-Joffe, a partner at Harmers Workplace Lawyers, says two recent cases had highlighted the need for employers to make sure their contracts contain a strong and carefully worded confidentially agreement.

In the first case from the New South Wales Court of Appeal, an Australian marble company brought action against two of its past directors over the directors’ use of confidential knowledge about a secret and highly confidential source of marble from Italy. The directors had used this knowledge to establish a relationship with the supplier in competition to their former employer.

In this case, the court found the information was confidential, but not in the nature of a trade secret and that the former directors had no obligation to refrain from using the information for their benefit. It was also found that although there was a contractual provision, which required the directors to keep the information confidential, it did not prevent them from using the information.

The second case, which was concluded earlier this month, involved a former employee of Digital Product Group using the company’s prices and sales volume information when working in his new role for a competitor. Digital Products petitioned for injunctions to restrain the former employee from using documents in written or electronic form, as well as any knowledge gained during the course of his employment.

Digital Products was able to stop the employee using the confidential documents in his possession under the common law principle preventing the divulging of trade secrets. But the company had no further legal recourse to restrain the former employee from using knowledge gained during the course of his employment, because the wording of his employment contract did not match its intended meaning.

“While the letter of employment provided a good definition of what was confidential information, the term ‘confidential information’ was not used in the actual clause, nor had the former employee signed the letter before starting full-time employment,” Schreier-Joffe says.

She says she sees many employers who have simply cut and pasted a standard confidentially clause into a contract without actually reviewing the clause to make sure it offers them adequate protection. “They put the clause in there, they think they are covered and they don’t bother to actually read it.” The cases above show how costly a clause that is slightly clumsily worded can be.

Schreier-Joffe says many employers do not realise that confidential information includes knowledge that an employee has gained about the business during the course of their employment as well as paper and electronic documents. While the common law protects employers from former employees divulging “trade secrets”, most other forms of confidential information can only be protected through a strong and carefully worded confidentiality agreement.

Schreier-Joffe has eight tips for protecting confidential information during and after an employee’s period of employment:

• Conduct pre-employment contract discussions and specify the information they consider to be confidential.
• Ensure employees know they are dealing with confidential information.
• Audit sensitive information.
• Develop and implement workplace policies around confidentiality.
• Develop and implement in-house security measures.
• Conduct a debrief with the employee on termination of employment, explaining their obligation to confidentiality.
• Conduct a post-employment audit.
• Review current contracts of employment and seek legal advice.

“Clear communication and thorough confidentiality clauses help ensure that employees are fully aware of their obligations and may reduce the likelihood of a breach of confidentiality,” Schreier-Joffe says.

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