Is an employee stealing confidential information from your business?

Most businesses deal with some sort of confidential information. Common examples of confidential information include client lists, plans, and databases. If employees exploit this information to their own advantage after their employment ends, this could have a crippling effect on their employer’s business.

If an employee stealing confidential information from your business, what measures can you take to protect your business?

You may be able to take them to court. In many cases, the courts have considered the employee’s duties when dealing with confidential information belonging to their employer. Of course, it is easier to prevent the theft of information in the first place.

What duties do employees owe to their employer in regards to confidential information?

Employees owe their employer duties under contract, common law, statute and equity.

Contractual and common law duties

Employees owe a range of duties to their employers when dealing with confidential information. Some of these will be expressly outlined in the contract. Others will be implied by law. For example, it is well recognised that employees owe their employers duties of fidelity, good faith, and confidentiality.

Statutory duties

Sections 182 and 183 of the Corporations Act 2001 (Cth) outline that employees must not improperly misuse their information or their position. These duties also apply to directors and officers. These provisions extend beyond the employee making a profit for themselves, to using information or their position for the advantage of others. Some misuses of position or information can attract criminal liability under section 184. Stealing confidential information can also amount to breaches of the Copyright Act 1968 (Cth).

Fiduciary duties

In some situations, employees also owe their employers ‘fiduciary duties.’ It is a complicated question whether an employee is also a fiduciary. In general, an employee could owe fiduciary duties if they are in a senior role or they have managerial responsibilities.  In 2014, the Federal Court found that a head chef owed fiduciary duties as he was in charge of orders. A fiduciary will breach their fiduciary duties if they allow another interest or duty to conflict the duty they owe their employer, or receive unauthorised remuneration. This could include using confidential information to steal business opportunities from an employer. If a fiduciary relationship exists, a wider variety of remedies will be available to employer for breach.

Case study: SAI Global Property Division Pty Ltd v Johnstone
[2016] FCA 1333 (14 November 2016)

Recently, the Federal Court considered the case of an employee who stole confidential information from SAI Global, a business specialising in information services and compliance. The employee, Mr Johnstone, worked as a business development manager for SAI Global. A few days before his resignation, he copied two computer files from the SAI Global system onto a USB device. Using the information in these files, he ascertained which customers of SAI Global were also customers of his new employer Infotrack. Infotrack did not know of Mr Johnstone’s conduct. Despite being placed on a two week ‘garden leave’ period after his resignation from SAI Global, Mr Johnstone began working at Infotrack immediately.

At the hearing, Mr Johnstone admitted breaching his obligations under section 182 and 183 of the Corporations Act 2001 (Cth), breaching fiduciary duties owed to SAI Global, additional breaches of his employment contract by working for a competitor during the two week period following his resignation. The court ordered the following remedies:

  1. An injunction restraining Mr Johnstone from using SAI Global’s confidential information;
  2. $4,230.00, for the salary Mr Johnstone had been paid for the two week period following his resignation, during which he had begun working for his new employer;
  3. Nominal damages for copyright infringement ($1.00);
  4. Additional damages of $5,000.00 pursuant to the Copyright Act; and
  5. Costs in the amount of $196,416.00.

How can you prevent employees stealing or mishandling confidential information?

If an employee breaches their duties by stealing confidential information, the employer can seek legal remedies through litigation. However, it is best to take steps to prevent these breaches. We recommend that employers take the following steps:

  • Review your current employment contracts. Do they deal with use of confidential information? Do you need to add provisions dealing with ‘gardening leave’? Do you need to add ‘restraint of trade’ clauses for professional or senior employees?
  • Review job designs or position descriptions. Do any job designs disguise breaches?
  • Consider whether you need to use workplace surveillance technology (e.g. email monitoring software). Ensure that any surveillance complies with the Workplace Surveillance Act 2005 (NSW).
  • Consider whether the limits you place on employee authority are appropriate.
  • Ensure that employees receive appropriate training regarding the applicable policies.
  • Ensure that employees understand what kinds of information could be confidential.

Is an employee stealing confidential information from your business?

Want to prevent employees from stealing confidential information in the future?

Contact us to discuss protecting the intellectual property of your Newcastle or Sydney based business.

Image: ‘Confidential’ by Casey Marshall from Flickr. Click here to view Creative Commons licence.