3 Essential Steps to take When Faced with a Breach of Confidentiality

Confidentiality agreements, or non-disclosure agreements, are common legal tools for protecting private and privileged information. Businesses will often insist that employees, contractors and associates sign confidentiality agreements before they begin work. If a separate confidentiality agreement isn’t entered into, there’s a high chance that there will be a confidentiality clause in the employment contract, contractor’s agreement or other formal arrangement.

Protecting confidential information is critical to maintaining client’s trust and ensuring that unique ideas, techniques and formulas aren’t released to competitors. In today’s digital workplace, it’s now easier than ever for private information to be accessed, copied and shared. Unfortunately, there are no official statistics on the total value of trade secret theft globally. However, research undertaken by PwC and the Centre for Responsible Enterprise and Trade, estimated that trade secret theft in the US costs approximately US$200 billion to $500 billion per year. If these figures are similar in other advanced, industrial nations, then the global cost of trade secret theft is likely to be enormous.

Considering what a breach of confidence could cost a business, it’s important to have a firm understanding of how confidentiality agreements work and what steps to take in instances where there has been a breach.

Confidentiality agreements: breakdown

Confidentiality agreements are written legal instruments that protect trade secrets, new ideas and sensitive information. They can be unilateral (signed by only one party), bilateral (between two parties) or between multiple parties. Confidentiality agreements can only protect information that is confidential in character. Thus, if information is general knowledge, it won’t be considered confidential and can’t be protected.

Steps to take on a breach of confidentiality 

While most businesses have some form of confidentiality agreement with their employees and associates, it’s not always clear what steps should be taken in the instance of a breach. Below is a summary of three important steps to take when someone has breached a confidentiality agreement.

Step 1: Gather evidence

When dealing with a breach of confidence, it’s incredibly important to ensure that you have all the facts and evidence. If one of your employees has breached their confidentiality agreement, you’re going to need evidence of the breach before you can take any action. This step might involve saving any email correspondence or company logs and registers that demonstrate information has been taken without permission, as well as interviewing other staff and stakeholders who might have information regarding the breach.

Step 2: Review the agreement

The confidentiality agreement will be the foundation of any action you take on a breach. Make sure you read the agreement thoroughly. A contractual obligation of confidence can arise from the actual terms of the contract, or can be implied from the agreement.[1] Therefore, even if your confidentiality agreement or clause doesn’t expressly cover the type of breach you’re dealing with, it may be covered by implication.

If there are no formalities for the formation of a contract, don’t despair, an equitable obligation of confidence can still arise. This obligation arises where information that is confidential in nature has been shared without permission in circumstances where there was implied obligation of confidence.[2] However, be aware that a breach of this equitable obligation only arises in limited circumstances.

Step 3: Engage a lawyer

It’s important to engage a lawyer to help you bring action against a breach of confidentiality. A lawyer will be able to review your confidentiality agreement and the evidence you have gathered and discuss your options with you. They will be able to advise you on the best course of action and guide you through the legal process. It’s likely that there will be some form of recourse available to you. If you have a case for breach of a contractual obligation, you will be able to seek an injunction to prevent threatened or further use of your private information, as well as compensation for economic loss due to the breach. If there is a breach of an equitable obligation, you can seek an account of the anticipated profits derived from the breach, an injunction or a declaration stating the information belongs to you and was shared without permission.

Above all, its imperative that businesses have clear protocols regarding privileged information and strong, well written confidentiality agreements to minimise the risk associated with a breach of confidence.

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[1] Parry-Jones v The Law Society [1968] 1 All ER 177.
[2] Corrs Pavey Whiting & Byrne v Collector of Customs for Victoria  [1987] FCA 433; Smith Kline & French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73.