Be Proactive to Protect Information: Report

A new Australian analysis underscores the importance of employers taking practical and legal steps to prevent current or former employees from misusing their confidential information.

The paper, ‘Confidential information and departing employees – the threat from within’ by Richard Hoad and James Neil of law firm Clayton Utz said that “the risks posed to businesses by their former employees have never been greater.”

Published in the August 2013 issue of the Employment Law Bulletin, Hoad and Neil said organisations could most effectively protect their data through contractual agreements, exit procedures for departing employees and alertness of confidentiality in day-to-day business practice.

Key questions to help determine whether an employee is entitled to use information gained during the course of employment included contractual inclusions and the kind of information to be used.

“The nature of the relevant information is vital to determining whether the (former) employee may use it, and when,” the paper concluded.

Whether the information was a trade secret, ‘know-how’ developed during the course of employment, or merely trivial influenced how it could be used by ex-employees.

Trade secrets, for example, could not legally be used after an employee had left whether or not there was a contractual agreement restricting such use.

Trade secrets included ‘information which, if disclosed to a competitor, would be liable to cause real (or significant) harm to the owner of the secret’.

Examples of trade secrets could include customer lists, pricing information, costing information and profit-and-loss information, the paper said.

However, contractual protection of specific types of information was still the best course of action due to the difficulty in determining what may and may not be classified as a trade secret.

For example, although employees could not create a list of their employer's customers specifically to solicit their business after they leave, a former employee could use their memory of the identity of those customers to canvass their business after leaving their job, as such knowledge fell under the category of  ‘know-how’.

Former employees are free to use the know-how they have gained after they leave, even if that information is confidential to their former employer.

Hoad and Neil said contracts were the primary legal means by which a business could protect its confidential information by imposing specific prohibitions in employment contracts.

Employers could prevent their former employees from using ‘know-how’ through specific restrictions in an employee’s contract.

It was best to set out specific descriptions of the information employees are forbidden to use both during and after the term of employment in employment contracts.

“Obligations relating to confidential information should be tailored to the employee concerned. “One size does not fit all,” the paper said.

It was also recommended that practical steps be taken in the workplace to protect information.

“It is important to build a fence around corporate confidential information, and keep the gate shut. Knowing what is within the fence is the first step. This can be achieved by conducting regular audits. If you do not know what confidential information is held within your business, you cannot properly develop, commercialise and protect it.”

Other Recommendations included:

• Mark confidential documents as such.

• Only record and share confidential information as appropriate.

• Limit disclosure to those who need to know.

• At the exit interview, remind the employee of their confidentiality obligations and require them to hand over personal electronic devices.

• Where an employee leaves to go to a competitor or to start up their own competing business, quarantine their computer for a short period following their departure.

• Investigate concerns and take swift action where appropriate.

Read the full analysis here.