Breach of Confidentiality can be Costly

Posted on: Thursday, 17 August 2017.

Employees have ready access to their employer’s confidential information during the course of their employment. For an employee, this information is important in order to carry out their duties but for an exiting employee, they may be tempted to improperly retain information believing it will be useful in their new position. Many employers are concerned about the damage an employee could do if they were to take the company’s confidential information with them to a new employer.

In a recent case before the Federal Court of Australia, an employee was ordered to pay his former employer $9,231 in damages and $196,416 for its legal costs, as well as having an injunction imposed against him, restraining him from disclosing to any person any of the former employer’s confidential information.

The Case

Mr J was employed as a Business Development Manager from August 2015 to 12 November 2015. He resigned on 29 October 2015 and advised he had accepted a role with a competitor. Following his announcement he was provided with a letter confirming his resignation and reminded of his obligation regarding confidential information. He was placed on garden leave for his two week notice period, during which he would be required to respond to queries until close of business 12 November 2015. Accordingly this would be the last day of his employment.

Concerned that the employee was joining a competitor, management arranged for his laptop to be examined. It was found that three days before his resignation, the employee copied two computer files to a USB which contained the companies confidential and customer information. It was also discovered he had commenced employment with the new employer on 2 November 2015 whilst he was meant to be on garden leave.

The company subsequently commenced proceedings in the Federal Court. The employee admitted that he breached his employment contract by continuing to receive his salary while having commenced employment with his new employer and he had copied the confidential information without permission of the company and that he knew it was wrong to do so. The court also found out:

  • The employee copied the documents onto his new employer’s laptop and accessed the documents in the period 2 November 2015 and 4 December 2015 on a number of occasions;
  • The employee created a spreadsheet in his new employment which contained information from the confidential files to assist him in his new job;
  • The employee used the information to compare customer information;
  • The employer did not know about the employee’s actions.

The court held that by copying and accessing the confidential documents the employee:

  • Breached the express and implied terms of his contract;
  • Infringed the companies copyright; and
  • Breached the duties owed under Corporations Act 2001

In these circumstances, the company had in place the right protections and took the appropriate measures to seek to protect its confidential information. It is important that employers put in place such measures in order to protect their own confidential information and to prevent employees from copying, removing or disclosing this information. Such measures include:

  • A properly drafted employment contract which clearly defines confidential information and states that the employee can not disclose or use it without consent;
  • Reminding an exiting employee of their obligations regarding confidential information;
  • If required, place the exiting employee on garden leave (if permitted under the employment contract)
  • If possible or necessary, examining the exiting employee’s emails and / or analysing their hard drive to determine whether any confidential information was copied, created or emailed; and
  • Immediately seeking legal advice where confidential information has been taken.

Lessons to be learnt

This case is a timely reminder that unscrupulous employees can do significant damage to your business. There should be clear obligations in the contract of employment with regard to how confidential information is to be treated during employment and after. In circumstances where an employee leaves, whether they have been terminated or they have resigned, it is important to provide them with a letter outlining the reasons for the termination or acceptance of their resignation and then remind them of their obligations with regard to confidentiality and post-employment restraints.

Original article published by Lehanne Bleumink - Gold Seal HR Services Manager

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