Confidentiality and Employment – what can I protect?

It is not uncommon to find 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.

Confidential Information (‘CI’) as its commonly called in Australia 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’).

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.

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.

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.