All businesses have information they would prefer not to be in the hands of competitors, ex-employees, or the public domain. Confidential information can include (among other things) proprietary information, detailed plans, business activities, strategies and ideas, or future developments. Protecting confidential information can be vital to a business’ competitiveness and success.
Common circumstances where an employee or former employee can be considered to be compromising the confidentiality of your company is when they:
- copy data from a work computer or server onto a hard drive or USB before the end of their employment;
- disclose information from a employer to a new employer; or
- send emails from a work email account to a personal email address.
The most common way for a company to protect confidential information being disclosed or adversely used by departing employees is to include (in writing) broad confidentiality terms and restraint of trade provisions in their contract of employment.
What should the confidentiality clause include?
Non-disclosure agreements can be in the form of a confidentiality clause. Reasonably drafted confidentiality and restraint of trade terms can be extremely effective. Confidentiality clauses can be imported into an employment contract by outlining an employer’s obligations of confidentiality both during and after the employment including the following :
- A general description of all items that needs to remain confidential
- An outline of the reasons for the information to remain private
- An obligation to maintain its secrecy
- The obligations of the parties to the agreement
- The duty for employees return any confidential information in their possession when employment ends
- the time-frame in which the information is to remain confidential
- Detail of the consequences for breaching these obligations
Confidentiality agreements aiming to restrict the sharing or misuse of sensitive information outside the confines of the working relationship can be an effective way to protect your company’s confidential information. A contractual obligation of confidence can arise by implication, however, is greater enforceable when arising from express terms. It is important to note the nature of the obligation, the protection provided and the consequences will depend on the terms of the contract.
When an employee is departing…
Upon the termination or resignation of an employee, you should remind them of their obligations of confidentiality drawing attention to the signed confidentiality clause. Ensure they have returned any business property or equipment that holds confidential information.
Where you reasonably suspect confidential information has been taken by the employee and at risk of being misused or disclosed, you should send them a letter putting the employee on notice of their continuing obligations and the consequences if breached.
In commercial relationships
In addition to employees, it is important to take measures to protect your confidential information from being disclosed by parties you are undertaking commercial dealings with. This can also be accomplished through confidentiality clauses that establish contractual protection of confidential information.
Commercial contracts should include express contractual terms that specifically establish the information exchanged in the commercial relationship is to be treated as confidential between the parties.
The scope of a duty to confidentiality is usually marked via a specified time frame. Generally, the limitation is set at three years but any time frame can be expressly specified. Longer time frames are critical for startups as they are more vulnerable to being adversely affected by the disclosure of confidential information.
Enforcing confidentiality clauses
Expressly including confidentiality clauses in your contracts or drafting confidentiality agreements allows you to enforce the duty of confidence through contract law. Given the contractual nature, all that must be established is an actual or anticipatory breach of the agreement. However, it can often be difficult to gather evidence to support that an employee has disclosed confidential information. As in the absence of a recorded conversation where the information is disclosed, establishing the breach may solely rely on the other party having to admit guilt.
Outside contractual protections
In addition to expressly stated terms, Australian legislation offers statutory protection of secret information protection. The Corporations Act 2001 (Cth) imposes a statutory duty on employees working for a corporation which prevents them from using their position or information to gain an advantage for themselves or to cause detriment to the company.
The equitable duty of confidence
In certain circumstances, an equitable obligation of confidence can arise and operate to prevent the disclosure of secret information. The obligation arises where information with the necessary quality of confidence is imparted to the other party. The equitable obligation is not exclusively applicable to employees but rather capable of applying to any third party you are commercially dealing with.
Successfully establishing a breach of the equitable duty of confidence will allow you to receive an injunction and damages.
It is best practise to include confidentiality clauses in your contracted dealings and employment contracts as an express form of protection that clearly outlines the duty of confidentiality and the consequences if it is breached.