Confidentiality and Employment – what can I protect?

Table of Contents

Introduction

It is not uncommon to find confidentiality clauses in employment agreements that aim to protect the enterprise from misuse or theft of Confidential Information including Trade Secrets.

The question is how effective these are.

What is Confidential Information in Australian Law?

Confidential Information (‘CI’) is largely a creature of contract or equity. We do not, for the most part, have a legislative base for the protection of CI whereas for example in the U.S they do. As such in Australia protection of CI is an equitable action, (e.g. an Injunction to prevent release). If the information has been released, damages may be the appropriate remedy here too.

My favourite case on this (albeit an old one and there are more recent ones) is Faccenda Chicken V Fowler and Others [1986] IRLR 69, CA (‘Fowler’).

Case Example

Faccenda Chicken employed Mr Fowler as a sales manager. The company used a system suggested by him. He left their employment and started a similar business employing some of Faccenda’s staff. Critically this matter was not covered in Mr Fowler’s contract of employment. Faccenda sought an injunction to restrain Mr Fowler from using confidential sales information. When their application was refused, they appealed to the Court of Appeal.

Confidentiality in the employment Agreement

It was held in Fowler that where an ex-employee acquired confidential information in the course of employment, then they could use such information. But they are not entitled to memorise or record such information for the purpose of using it after termination of employment.

However in fowler the Sales Information in question was not held to be a Trade Secret and the Appeal was dismissed.

Now it is Important to note this was an ex employee. Current employees have a duty of fidelity to their employer which imposes restrictions on how they should treat CI, but once again it is better to be protected.

Summary

So in summary, lessons from Fowler are:

  1. the information in question must be confidential, must not have been released already (except by the recipient in question, the employee) and must cause damage to the party. Not all information an employee obtains is in fact CI.
  2. It is extremely important to have a well drafted and enforceable CI clause in your employee contracts (including those used for contractors)
  3. In the absence of a clear CI clause you may very well have a major issue enforcing CI.

As always I’m happy to advise on this or any other commercial law matter. Contact the law firm here.

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David was INSTRUMENTAL in helping me launch a new business quickly and properly. He looked at the information I had put together, talked through what I needed and why it was important, and worked with me to get the right solution sorted quickly (unlike the previous company I had been dealing with who dragged things on for weeks and then just tried to sell me what they had rather than listen to/understand what I was after). VERY impressed with the quick turnaround and have no hesitation recommending him to others. Will definitely use his services for future projects.
Arek Rainczuk
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I engaged David to draw up contracts for my agency. He took the time to learn about my specific needs, proposed valuable clauses and delivered in a timely manner. David is very experienced and easy to work with, now I have the peace of mind to focus on what I do best.
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