Many companies spend thousands of dollars each year on the protection and security of their physical property but don't take steps to protect their most valuable asset - their confidential business and technical information.
Confidential information can take many forms and includes product concepts, prototypes, designs, pictures and drawings,manufacturing and production processes, computer programs, recipes, ingredients, and customer and supplier lists.
An employee is bound by two relevant obligations: the duty of fidelity (otherwise known as "loyalty"), which requires an employee to always act in their employer's best interest; and the obligation to keep confidential information confidential.
Where there is dishonesty or disloyalty during the employment relationship, employees can be prevented from using or benefiting from business information. The Courts will generally require the employee to repay to the employer the ‘fruits' of their dishonest labour, and the profits made by their improper use of the information.
The duty of loyalty only applies while the employee is employed, There is nothing stopping an employee contacting clients or staff after leaving, subject to the obligations of confidentiality or restraints discussed below.
The obligation to keep confidential information confidential only applies in certain circumstances. Information in the public domain or "trivial" information is not confidential, nor is "know how" (information that is inextricably linked with the skill, knowledge and experience of the employee).
A restraint of trade clause is the only way in which to protect the "know how" of your business. Such a clause restricts an ex-employee for a specific period of time and within a specific geographical region, so as to protect the employer from any unfair vulnerability from the loss of that employee.
The golden rule for restraint of trade clauses is that they must be reasonable in time, geographical region and scope. These clauses are often struck down by Courts and so need to be carefully considered and drafted on a case by case basis.
A "trade secret" is commercial and competitive information that is very special to a particular business.
Provided that the information is classified as a ‘trade secret', an ex-employee can be prevented from using it in their new position for as long as it remains confidential. Whether information is a trade secret depends heavily on how such information is treated by the employer, for example, what measures has the employer taken to safeguard the secrecy of the information? What is the value of the information to the employer as against its competitors? How easy is it for others to acquire the information?
Practical steps
There are steps that you can take to make it more likely that your information will be protected.
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Apply labels, passwords or warnings in relation to commercially sensitive information.
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Have restricted access to certain confidential information (ie, designated areas, ‘no visitor' areas).
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Ensure that all diaries and mobile telephones used by employees are company property and returnable upon leaving employment.
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Ensure that your Employment Contracts specifically refer to confidentiality and where required include an individually-tailored restraint of trade clause.
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Ensure that your contractors and ‘specific purpose' employees also sign a specific Confidentiality Deed.
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Tell your employees which information is confidential and that restrictions apply to its use or disclosure.
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Review and periodically update your Confidentiality Deeds and Employment Contracts, especially if you are in a business which is continually developing new confidential information.
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Develop and implement a formal policy for your employees' use of confidential information (ie, working from home).
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Be ‘hands on' - maintain contact with your customers to break the exclusivity of your employees' relationships with them, and insist on regular meetings with key staff to keep informed of your customers' dealings.
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If employees develop business systems and confidential information as part of their job, specify that this information is developed for and is owned by the employer.
Conclusion
Despite however loyal you consider your employees are, don't leave the protection of your confidential information until it is too late.