Protect your confidential business information before your employee starts

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To reduce the risk of confidential information being flaunted by a terminated employee, employers need to place a greater emphasis on the pre-contractual phases of employment negotiations. Equilaw partner, Daniel Morgan, investigates a problem that often frustrates employers.

 

A number of cases here at Equilaw suggest that employers are becoming more wisened to safe guarding themselves from ex-employees who may divulge confidential, or obtain employment, with a rival business.

This is an issue that needs to be raised by employers during the pre-contractual phase of negotiation with prospective employees.

Many employers do not pay enough attention to confidentiality clauses (and also restraint clauses) in pre-contractual negotiations and contracts of employment.

Employers often find themselves insufficiently protected when former employees disclose valuable information, use client lists or knowledge that was garnered during their employment.

It is not sufficient when dealing with professional employees, who you intend to be a vital “cog in the wheel” of your organisation, to simply “cut and paste” generic confidentiality clauses into Letters of Employment or Contracts. Such contracts give little protection against future breaches of confidentiality and cannot be relied upon if the former employee ends up working in opposition to their previous employer.

The case of Digital Products Group v Opferkuch (June 2008) is a prime example where a former employee used his former employer’s prices and sales volume information when working for a competitor. While Digital Products was protected by the Trade Practices Act in regards to the divulging of “trade secrets”, the company had no further legal recall to restrain the former employee from using the knowledge gained during the course of his employment because the wording of the employment contract did not match its intended meaning.

The slandered common law principles of Employment Law are:

  • An employee is expected to act in “good faith” towards their employer;
  • There is an obligation for the employee not to divulge confidential information;
  • There is a further obligation for the employee not to release confidential information that is detrimental to their employer.

However, when an employee moves onto a new job, it is imperative that a strong contract has been put in place to protect the employer’s interest and confidential information.

Confidential information does not only apply to paper and actual documents, it also applies to knowledge that an employee may have gained about the business during the course of their employment.

I am often asked by disgruntled employers “what is the likelihood of successfully preventing the use of confidential information by restraining former employees?” My answer is usually somewhat negative due to the fact that proper attention was not paid to negotiations with the employee prior to them commencing their position and the drafting of their employment letter or contract.

Employers wishing to protect their position from ex-employees should as a matter of course:

  • Conduct pre-employment contract discussions specifying the information that they consider to be confidential and noting these discussions in a prospective file note and confirm them in a pre-employment letter with the employee;
  • Ensure employees know that they are dealing with confidential information;
  • Develop in-house protections;
  • Conduct a de-brief with employees prior to their termination of their employment explaining their obligations to confidentiality and also explaining their obligations in relation to any restraint of trade;
  • Review any unsatisfactory conduct by former employees and develop pre-employment strategies and appropriate contractual clause;
  • Review current contracts of employment.

Paying proper attention to pre-contractual communication with prospective employees and ensuring that the contracts of employment are properly drafted will then give a dissatisfied employer confidence to take the necessary legal steps to protect their business.