All businesses, especially those involved in innovation, should take steps to prevent employees from going out with confidential information.

The self-driving car industry is awaiting the December lawsuit in the United States, which will decide whether Uber has hijacked trade secrets from Google’s self-driving car spin-off Waymo.

Uber’s self-driving car project was led by Anthony Levandowski, a former Googler who allegedly downloaded 14,000 files from Google before he left in January 2016.

Whatever the outcome, the U.S. case reminds all companies, especially those involved in innovation, to take action to prevent employees from dating confidential information, such as customer lists or property. intellectual (IP) not registered.

Prevent disclosure

As noted below, there are a number of steps that need to be taken to prevent outgoing and former employees from using your confidential information and becoming your biggest competitor.

Employees should be contractually obligated to keep their employer’s information confidential. It is standard for employment contracts such obligations.

Employment contracts should also contain non-competition clauses. These should be reasonable in scope, as they will not be enforceable if they prevent the former employee from earning a living.

Where confidential information consists of high value information that has a short shelf life (i.e. less than six months), employers should consider implementing a trade restriction (known as ‘gardening leave’). ”), Which prevents ex-employees from working for a competitor while the information remains confidential.

Contractual obligations should also be imposed to prevent employees from taking the inventions they develop in their role and using them for the benefit of a competitor. When an employee’s job is likely to involve inventing, their employment contract should:

  1. expressly state that the employee has a duty to invent; and
  2. require them to transfer ownership of any invention they create in the course of their employment to their employer.

Clauses which oblige the employee to fully and promptly disclose all inventive ideas and to keep records of research undertaken should also be included.

Companies should regularly undertake an audit to determine which employees have access to which data. In some circumstances, it may be appropriate to revise the security credentials provided to staff, especially when a business is expanding or embarking on a new project and obtaining new valuable confidential information. Access to key confidential information may need to be limited to specific personnel based on need to know.

Employers should also maintain internal policies detailing how important business information should be kept confidential and how intellectual property created by employees should be treated.

Such policies should reiterate the value of confidential information to the business and stress the importance of employees keeping this information confidential. These policies will need to be well communicated to all employees and appropriate training in place to ensure that all affected employees are aware of the terms, including updates.

In a highly innovative business, such policies should include mechanisms for reporting inventive research and ideas. They should also detail how contractual confidentiality requirements work on a regular basis, such as preventing employees from removing work product from the office.

It is important that when accessing information of a confidential nature, employees are reminded of the confidential nature of the information and the circumstances in which it may be used. If the information is misused, the employer may have grounds to take legal action for breach of trust.

What legal action can an employer take?

Employers may need to take legal action to prevent outgoing or former employees from using their confidential information and may seek injunctive relief, damages and / or costs orders from the courts.

When an employee violates the confidentiality provisions of his employment contract, the employer may, in some cases, have reasons to terminate his employment (assuming he has not yet left) and may sue for breach of contract.

Alternatively (or in addition), the employer may be able to bring an action for breach of trust. For such action to be successful in Australia, the following must be present:

  1. the information is confidential;
  2. the information was given in circumstances involving an obligation of confidentiality; and
  3. there has been unauthorized use or threat of use of the information.

An action may also be brought for violation of Articles 182 and 183 of the Companies Act 2001 (Cth).

These articles provide that employees must not improperly use their position or information obtained because they are or were employees of a company, to gain a benefit for themselves or someone else, or to cause harm to society.

In addition, senior employees may have fiduciary obligations to their employer, which will be violated if they use their employer’s confidential information for private purposes.

Under certain circumstances, the unauthorized use of confidential information may constitute an infringement of copyright. In Luxottica Retail Australia v Grant [2009] NSWSC 126, an optometrist emailed documents to herself from her workplace, before quitting, and was found guilty of infringing copyright in the process.

In IPC Global Pty Ltd v Pavetest Pty Ltd (N ° 3) [2017] FCA 82, two executives resigned from IPC Global but one kept a copy of their test software on his computer. When establishing a new company, Pavetest, a programmer received a copy of IPC Global’s confidential source code and communications protocol documents for “research” purposes.

Although only a small part of the code was subsequently reproduced by the programmer on behalf of Pavetest, since it was, qualitatively, a substantial part, this constituted copyright infringement. The start-up and former employees were found guilty of breaching their duty of confidentiality to IPC Global and infringing copyright.

In certain circumstances, an employer may seek a stepping stone injunction when an employee misuses confidential information or acts in breach of an obligation, such as a fiduciary duty, and is likely to get a head start on his employer. However, such an order is unlikely to be granted when it extends significantly beyond the period provided for in a contractual restriction (see for example DXC Connect Pty Ltd vs. Deibe [2017] NSWSC 1159-65).

Final remark

Famous Australian online fashion retailer, Show Pony Group Ltd (“ShowPo”) has launched legal action after a former employee alleged the theft of its customer contact list, listing customers, contest entrants and suppliers from ShowPo, which was provided to competitor, Black Swallow. Boutique Pty Ltd (“black swallow”).

An interim injunction was initially ordered, following which Black Swallow was prevented from using or disclosing the customer contact list or any information derived from it, and was ordered to pay ShowPo $ 60,000. Each party had to pay its own costs.

In addition to ShowPo’s time in court and mediation, and the sunk costs it incurred, it appears the case has provided Black Swallow with substantial free publicity.

According to Business Insider, the chief executive of Black Swallow reported record levels of traffic to his site, resulting from the publicity generated by the case. While a court injunction may be necessary to prevent competitors from using critical business information illegitimately obtained from former employees, competitors can still benefit from their misconduct.

Considering how easy it is to copy data to USB drives and provide it to a competitor, it’s no surprise that insider threats are on the rise.

Employers should be proactive in taking steps to prevent employees from improperly using confidential information and from providing that information to their new employer when they leave.

Employers should review their employment contracts with staff, take into account their internal policies and implement technical safeguards to protect their confidential information.


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