By Abrar Chowdhury (Legal Intern)
Businesses possess plenty of information that must remain confidential. For example, a company planning to expand into a new market may have plans covering target locations, timing and pricing strategy. If an insider leaks that information, a competitor could use it to get ahead, and the company could lose its competitive advantage.
There are two broad categories of confidential information that businesses protect:
- Patents, trademarks and copyrights, and
- Other business secrets, such as expansion plans, pricing, customer lists, financial information, and internal performance reviews.
This article focuses on how to protect the latter.
This article discusses the 6 ways a business can protect its business secrets, including:
- Suing for ‘breach of confidence’.
- Drafting contracts to ensure employees do not disclose confidential information.
- Using statutory obligations that employers, directors and officers have under the Corporations Act 2001 (Cth).
- Criminal and statutory offences including; theft of trade secrets, computer offences under the Criminal Code Act 1995 (Cth).
- Companies can surveil workplaces (e.g. with emails and devices) – but this is subject to regulation (e.g. in NSW, the Workplace Surveillance Act 2005 (NSW)).
- Courts can issue injunctions and interlocutory orders that prevent business secrets from being leaked.
Suing for ‘breach of confidence’
Businesses can sue for ‘breach of confidence’ if they want to protect confidential information from unauthorised use or disclosure.
‘Breach of confidence’ is available if:
- The information is confidential. It cannot be trivial information or already public knowledge.
- The secretive informative was disclosed by someone who had an obligation to keep it a secret. Someone can have this obligation if they are an employee, a doctor who has to keep their patient’s information private, or a lawyer who has to keep their client’s information secretive.
- There has been, or there is a threat of, unauthorised use or disclosure. This is usually to the detriment of the business whose information was disclosed.
These requirements were set out by the Federal Court of Australia in Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health in 1990.
If a business can establish these requirements, a court can issue an orders to stop the further use or disclosure of that information. They can order the return or destruction of confidential documents, strip the wrongdoing party of their profits, and compensate the injured party for any losses sustained.
2. Using contracts
Contracts are often a business’s first line of defence. Well-drafted confidentiality clauses should:
- Define what counts as confidential information;
- Limit how the information can be used;
- Ensure the confidentiality clause continues after employment ends; and
- Require confidential material to be returned or destroyed.
These clauses should appear in employment contracts, and in non-disclosure agreements signed before information is shared with contractors, suppliers, prospective investors or potential buyers.
Businesses sometimes also use post-employment restraints, such as non-compete and non-solicitation clauses. These are only enforceable if they are reasonable to protect a legitimate business interest. Businesses should be wary when drafting clauses that courts can strike down overly broad restraints.
What constitutes an unreasonably broad restriant differs between states. For example, in NSW courts, courts can read down a restraint if it is unreasonable (s 4 Restraints of Trade Act 1976 (NSW)).
However, confidentiality clauses cannot stop employees from making protected whistleblower disclosures under Part 9.4AAA of the Corporations Act 2001 (Cth) for serious wrongdoing by businesses.
3. Duties under the Corporations Act 2001 (Cth)
Confidential information is protected by the Corporations Act 2001 (Cth).
Specifically, there are obligations in employees and directors within a company to not improperly use information obtained in their employment to gain an advantage for themselves or anyone else under (see s 183 Corporations Act 2001 (Cth)).
This obligation continues even after they leave their office.
Businesses can protect confidential information by reporting breaches of s 183 to ASIC. ASIC can then impose penalties on those former employees – which means that businesses can be compensated for their loss.
In serious cases involving dishonesty or recklessness, a breach of this duty to not misuse or disclose confidential information in past jobs can also be a criminal offence (see s 184 Corporations Act 2001 (Cth)).
4. Criminal and statutory offences
Contrary to popular belief, Australia has no general criminal offence for ‘theft of trade secrets’. Ordinary theft laws, like the law of larceny, are a poor fit because information alone is intangible and is not treated as property (Croton v The Queen (1967) 117 CLR 326; Ilich v The Queen (1987) 162 CLR 110). However, other offences may apply depending on how the information was obtained. For example, confidential information in computer systems can is protected under legislation. The Criminal Code Act 1995 (Cth) criminalises unauthorised access to confidential held in a computer (Part 10.7), and each state and territory has similar offences (for example, see s 308H of the Crimes Act 1900 (NSW)). These can apply, for instance, where an employee accesses or downloads files, they have no authority to access.
Criminal proceedings are brought by authorities, not by the business itself, so they are generally reserved for serious cases. In most disputes, civil remedies are the more practical option.
5. Monitoring the workplace lawfully
Employers can generally monitor work emails, devices and systems to detect leaks and prevent the misuse or disclosure of confidential information. However, this is regulated – and there is legislation in place to ensure this doesn’t excessively breach workers’ privacy. Regulation of workplace monitoring differs between states:
- In NSW, the Workplace Surveillance Act 2005 (NSW) generally requires employers to give employees written notice (usually 14 days) before surveillance starts.
- In the ACT, the Workplace Privacy Act 2011 (ACT) imposes its own notice requirements.
- Other states and territories: the rules are found in surveillance devices and privacy laws, and some restrict surveillance in certain places (such as toilets and change rooms).
Federal law also restricts intercepting any communications on a telecommunications network as they pass over it (see s 7 Telecommunications (Interception and Access) Act 1979). Because the rules differ between states, businesses that operate in multiple states should have a surveillance policy that complies with each jurisdiction and should tell employees about it in writing.
6. Obtaining urgent court orders
When a leak is imminent or has just happened, speed matters. Courts can grant an ‘interlocutory injunction’ a temporary order made before the final hearing that stops the use or disclosure of confidential information. The business generally needs to show that there is a serious risk of confidential information being disclosed, and if it were disclosed it would have serious implications (see Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57).
In suitable cases, courts can also make orders for the return of documents or devices, and, more rarely, ‘search orders’ that allow a business to preserve evidence (see, e.g. in NSW, Rule 25.19 of the Uniform Civil Procedure Rules 2005 (NSW). Delay can undermine an application, so businesses should seek legal advice as soon as they suspect a breach.
How can OpenLegal help?
OpenLegal can assist businesses in protecting their confidential information. This can include preparing and reviewing confidentiality clauses and non-disclosure agreements and acting urgently where confidential information has been leaked or is at risk of being misused.
If you are concerned about protecting your business’s confidential information, OpenLegal offers a free 15-minute consultation to discuss your matter and how we may be able to assist.
Visit openlegal.com.au to learn more.
Abrar Chowdhury | Legal Intern
This article is general information only and is not legal advice. Please obtain advice specific to your circumstances from a legal practitioner.
