I INTRODUCTION As in Qantas Airways Ltd v Lucinda Holdforth, the case brings the issue of confidentiality in the context of employers and employees.[ Qantas Airways Ltd v Lucinda Holdforth [2015] NSWSC 821] In the second section, some relevant legislation protection of confidential information will be listed.
In the third section this paper will evaluate the current protection regime, in order to see whether the current law is well developed and find out the grey zone where the employees may take advantage of the confidential information. In the last section, this paper will provide some general recommendations on the ways to protect confidential information, as well as clauses concerning trade secrets in the employment contract.
II LAW ON CONFIDENTIALITY The common law imposes duties of confidentiality on employees which arise in contract and equity. A Contractual obligations Express terms in confidentiality provision gives the employee a contractual obligation of confidence. Under the Restraint of Trade Act 1976, a restraint clause is valid if it is reasonable and not too broad to be enforced.[ Restraint of Trade Act 1976(NSW) SECT 4]
B Equitable obligations In the absence of express terms, employees are still bound by the implied duty of good faith, loyalty and fidelity to their employers, which arises from the special position of trust and confidence held by an employee.[ J Macken, P O’Grady, C Sappideen and G Warburton, Law of Employment (4th ed, 2002), 139–141.] A contract implies an equitable obligation that an employee will not compete against his employer, including using his employer’s time or own spare time to engage in competitive activities,[ Thomas Marshall Ltd v Guinle [1978] 3 WLR 116 at 132] maintain trade secrets obtained during employment and not disclose that information adversely to his employer’s interest after the termination of employment.[ Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617, 625–628]
The springboard doctrine also provides that the employee should not be allowed to use trade secrets as a springboard to a better position than would have been achieved using the publicly available information or his own existing skills.[ RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd and Ors [2011]FCA 423[73]] This corresponds with the Corporation Act 2001 s183(1) which states that an employee who obtains information during the employment must not improperly use that information to gain an advantage for themselves by causing detriment to the corporation. This duty continues after the end of employment.[ Corporation Act 2001 SECT 183(1)]
Under the equitable doctrine, a breach of confidence needs to satisfy three elements[ Coco v AN Clark Ltd[1969] RPC 41 at 47]: 1.The information is confidential in nature, 2.The communication was made in circumstances importing an obligation of confidence, 3.The use of the information was unauthorized.
However, in Spycatcher, the court held that the duty of confidentiality is limited where the information (i) has entered the ‘public domain’, (ii) is trivial or ‘know how’ or (iii) is negated by public interest.[ Spycathcer [1990] 1 A.C. 109 at 281]
Further, common law provides relevant remedies, including interlocutory injunctions, final injunctions, orders for delivery up or destruction, and account of profits.[ Francis Gurry, Breach of confidence(Clarendon Press, 1984), 376-424 ] Though, the employers with ‘unclean hands’ cannot be granted with damages.[ R.P. Meagher, W.M.C. Gummow, Equity-Doctrines and Remedies(Sydney, 1975)]
III EVALUATION OF PROTECTION A Strengths 1. Established categories Trade secrets may include (inexhaustively) the manufacturing process, advertising strategies, and customer profiles. The protection of such confidential information is well developed with many strong precedents under Australian common law.
As for client lists, for instance, the employee will be in breach of confidence if he (i)solicits the employer’s customers, (ii)copies[ Robb v Green [1895] 2 Q.B. 315] or (iii)deliberately memorized the customer list[ House of Lords in Herbert Morris, Ltd. v. Saxelby, [1916] 1 AC 688.] before the end of employment, with an intention of competing against the employer.
Further, in Pedley v IPMS Pty Ltd, the court held that the termination of the employment contract of the defendant, who was attempting to solicit clients through Linkedln in the interest of his own business, was valid.[ Pedley v IPMS Pty Ltd t/as Peckvonhartel [2013] FWC 4282] It shows the law has developed considerably to provide for situations where new technology (social media) has added to the circumstances where an employer’s interests may be compromised. However, this is only one aspect of the law (related to client lists).
2. Springboard doctrine See above for explanation of the doctrine. The ‘head-start’ principle[ Mars UK Ltd v Teknowledge Ltd (1999) 46 IPR 248,256.], states that when trade secrets become public and are no longer legally protected, the defendant can be restrained from using that information for a limited reasonable period. The underlying reason for this is that although the information may be publicly available, but any process related to the innovative use of publicly available information may remain confidential.[ Ammon v Consolidated Minerals Ltd [No 3] [2007] WASC 232 per Martin CJ at [290].] This allows for reasonable protection of company information following termination of employment.
B Weaknesses Despite the strengths examined above, the law protecting trade secrets is generally weak in Australia.
1. Relevant statutes The lack of legislation protection is examined below through comparison with equivalent protections in other legal systems.
New Zealand New Zealand deals with the breach of confidence under the Crimes Act 1961. There are no statutes or applicable provisions concerning trade secrets in Australia’s criminal law. The criminal law has also failed to address the issue of fault. There are instances where the defendant who appropriated a trade secret may be liable, including unauthorized access to the information, but the underlying information is not protected as a trade secret.[ MacLaren, ‘Trade Secrets Throughout the Word,’2.4 (2012).]
America The US has a well-developed regime for protection of trade secrets under the Uniform Trade Secrets Act. Its legislation outlines four factors to be determined:[ Uniform Trade Secrets Act (1985)] 1.The nature of confidentiality agreements,
2.Whether employees have been informed of the trade secret, 3.Whether there was limited access on a need-to-know basis, 4.Hard or digital copies are kept under secure protections.
However as there is no similar statutory guidance in Australia, the determination of a trade secret will only be made when the secret is misused or disclosed. Only then will the courts examine the following factors regarding whether the employer has done enough to protect trade secrets:[ Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 at 50.] 1.The extent to which the secret is known by the employees,
2.The extent of protection taken by the employer , 3.The difficulty in having access to the information.
The general nature of the principles set down in Australian common law and the lack of statutory protections means that there is considerable uncertainty for plaintiffs considering bringing a suit.
2 . Remedies The injunction on the breach of confidence is not mandatory. If an employee discloses the confidential information publicly, the fact that the information is no longer secret will preclude an injunction.[ Attorney General v. Guardian Newspapers Ltd. (No. 2), [1988] 3 All ER 545.]
3. Difficulty drawing a line Goulding J identified three classes of information acquired in the course of employment:[ Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617] 1.Trivial and publicly available information 2.know-how, which becomes one’s general knowledge and skill 3.Trade secrets[ Ibid]
It is suggested that only the third category can be protected after termination of employment.[ Ibid] However, there is no formula for determining whether a piece of information is confidential. The court will determine if the information which becomes employee’s stock of knowledge belongs to the employer’s property. In Lamb v Evan, the duty was limited to not using materials acquired during his employment, but does not prevent him from using his knowledge.[ Lamb v Evan [1893] 1 Ch 218 at 236]
Australian courts are reluctant to enforce restrictive covenants that prevent the employee from earning a living.[ Ansell Rubber Co. Pty. Ltd. v. Allied Rubber Industries Pty. Ltd. [1967] VR 37.] Thus, in the absence of an express covenant, it would be difficult to protect trade secrets merely by relying on the court to extend the equitable doctrine to the implied duty of confidentiality.