Smart ways to protect your business’s confidential information

This may surprise you, but in Australia, there isn’t a legal obligation for an employer to issue employment contracts to employees! So why bother having employment contracts in place? Employment contracts are designed to clearly communicate an employer’s and employee’s obligations and are a useful mechanism for protecting both parties. It’s common for employees to have access to their employer’s confidential information to assist them in doing their jobs throughout their employment – think client lists, supplier information, and financial information. To protect this information from misuse, it’s a good idea to have a well-drafted employment contract in place – this can outline how these obligations continue to exist even after employment has ended.

Below, we share a fictional example of misuse of confidential information and outline how an employment contract with a confidentiality clause can help.

This is Bill’s story 

Bill runs a small mechanics garage in a rural town south of Sydney with four full-time employees who he treats like family. When he first hired his employees, Bill spent a lot of one-on-one time with each of them, teaching them the ins and outs of running his business and sharing all the trade secrets he knew.

Bill’s brother-in-law works in HR for a large national retailer and advised Bill that he should make sure he gives each employee he hires an employment contract upon commencement. Not being able to afford an HR manager or advisor, Bill took his brother-in-law’s advice and bought an employment contract from a website and gave one to each of his employees. He didn’t take the time to read the employment contract thoroughly before giving it to his employees.

Bill recently sat down to clear the backlog of emails on the office computer and found a series of emails that Rob, one of his employees, had sent to one of Bill’s competitors in town. The emails included confidential information such as price lists, supplier lists, how-to-manuals, and online account passwords.

What can Bill do?

If the contract that Bill purchased online contained a confidentiality clause, he may be able to enforce the clause and look to terminate Rob for breach of contract. Although there was an employment contract in place, it didn’t contain a confidentiality clause, so if Bill decided to discipline Rob and terminate Rob’s employment, Bill would struggle to defend a potential claim, and he would likely face large legal costs trying to.

This, however, doesn’t mean that if the contracts didn’t contain a confidentiality clause, Bill would have no avenues to address the situation. By law, an employee must not disclose confidential or commercially sensitive information obtained throughout employment. This duty has been found to survive the termination of employment and can be implied – that is, it exists regardless of whether or not a contract states that it does.

However, to safeguard an employer’s sensitive information, it’s best practice to define the obligations and clearly state that they survive termination. The advantage of defining confidentiality obligations is that it allows an employer to explicitly state those obligations and tailor them specifically to the business’s operations. It also means that employees who are otherwise unaware they’re obliged to non-disclosure of confidential information are made aware and can’t plead ignorance.

It’s important to note that there have been cases, such as Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111, where the court has upheld non-compete clauses and reinforced that the courts will favourably enforce non-compete clauses to protect the employer’s interests when this is dictated in contracts.

What happens if an employee breaches their obligations after termination or I only find out after they have left?

If an employer becomes aware that an employee has breached their confidentiality obligations, it’s common practice to write to the employee and remind them of their obligations, request that they immediately cease use of the confidential information and return and/or destroy it. The employer may also request that the employee sign an undertaking that they agree to comply with their post-employment obligations. Employers may also seek a court-ordered injunction that requires the employee to cease using the confidential information or stop doing something.

How Citation HR can help

Running a small business is hard work and there’s a lot to think about – from growth and profitability, marketing, and customer service to people management, and employer obligations – most business owners have their hands full. Citation HR makes managing your HR easy by providing businesses of all sizes with outsourced HR solutions. We aim to remove the stress of people management from you and leave you with the time and energy you need to focus on your main concern – running your business.

From the 24/7 HR Advice Line and our HR Software to the hundreds of legal documents, templates and checklists, our HRIS software and services help businesses mitigate workplace risks and ensure they’re compliant with the laws of the land.

In Bill’s situation, Citation HR could have provided compliant and bespoke employment contracts to suit the specific needs of his mechanics business. In addition to the legally sound employment contracts, Citation HR would have also advised and instructed Bill on how to resolve any workplace dispute by talking him through a step-by-step process via our HR Advice Line.

If this article has raised any concerns or questions about employment contracts or confidentiality clauses, contact our team at Citation HR via the 24/7 HR Advice Line.

Not a Citation HR client? To learn more about how Citation HR can support your business and streamline its people management processes, please reach out to our friendly team for a confidential, no-obligation chat here.

About our author

Olivia Perry is a qualified Workplace Relations Consultant at Citation HR. She regularly provides advice to a large range of clients in relation to workplace laws and management of complex workplace matters.