Shhhh… it’s a (trade) secret.

11 December 2014 | Reading time: 3 minutes

Confidential Information.

Most employees are privy to confidential information during the course of their employment. Employers usually include provisions in employment contracts prohibiting an employee from disclosing or misusing information that is confidential or essential to the employer’s business. Without such clauses, an employer may be left to rely on the employee’s implied duty of good faith. This duty may end at the termination of employment however, for trade secrets this continuing duty lives on.

No confidentiality agreement?

Where an employee is entrusted with confidential information, but is not bound by a confidentiality agreement and their employment ends, what are the possible outcomes? The employer may seek a court order restraining the former employee from misusing or disclosing the confidential information. In this situation the employer must establish that:

1. the information in question can be identified specifically;
2. the information can establish the necessary quality of confidentiality; and
3. the information was given to the confidant in circumstances importing confidence.

Let’s look at each of those in more detail.

1. Specifically specific.

The identity of the information that is being claimed as confidential must be specific and not in a broad sense. In Holyoake Industries (Vic) Pty Ltd and Anor v V-Flow Pty Ltd1, a former employee was in possession of a disc containing manuals and catalogues. However, the employer failed to ‘substantially identify’ and therefore prove the information on the disc was of a confidential nature. The onus is generally on the employer to prove that such disclosure or misuse has caused detriment to their business.

2. Qualify quality.

If the information in a broad sense can be accessible in the public domain or is common knowledge, then the necessary quality of confidence cannot be established. Merely naming a document a ‘trade secret’ or ‘confidential information’ does not make it confidential and ultimately the courts will favour the content rather than the form the information is contained in2. In Independent Management Resources v Brown3 the Court found that the alleged ‘commercially sensitive information’ did not have the necessary quality of confidence. In this case, a former employee working for a competing public relations company used allegedly confidential information in tender documents for the new employer. Independent Management Resources sued the former employee but was unsuccessful in its claim as the information contained in the document did not exemplify the necessary quality of confidence.

3. Confidence in your confidant.

Confidential information passed onto the confidant must attract obligations of confidence or the confidant ought to have been reasonably aware that the information was imparted in confidence. The best possible way to achieve this is through express notification in the form of a confidentiality agreement or relevant clauses in an employment contract. Otherwise, the knowledge of the confidant may have to be inferred by the nature and circumstances in which the information was passed.. The upmost care should be taken by an organisation when handling confidential information and strict provisions should be used to ensure that any such information should only be disclosed on a ‘need to know’ basis.

Categories of confidential information.

The nature of what information is considered to be inherently confidential is still determined on a case by case basis. However, over time, 4 general categories of confidential information have been recognised by law:

  • private secrets;
  • professional information;
  • commercial secrets; and
  • some government information.

When in doubt don’t leave it out.

Finding a competitive edge over a rival business is essential to any organisation’s success. The loss of sensitive information used to achieve that advantage can severely damage a business. All confidential and commercially sensitive information should be protected by employment contracts, employment policy documents and separate confidentiality agreements. At all times, the nature and scope of that information should be clearly defined. This is a straightforward way to implement enforceable restraints on the use and disclosure of information, and mitigate the risk of disputes arising.

1Holyoake Industries (Vic) Pty Ltd and Anor v V-Flow Pty Ltd (No 2) [2012] FCA 530
2Drake Personnel Ltd v Beddison [1979] BR 13 per Anderson J at paragraph 20
3Independent Management Resources v Brown [1987] VR 605