During their employment, employees acquire experience, confidential information, trade secrets and particular skills in the affairs, practices, customer requirements and trade connections of their employer.

An employer does not have any property in its staff. Rather, the employer's interest is delineated by the employment contract. Therefore an employer will need to make provision in the contract to protect the goodwill of its business, that is, have a restraint of trade covenant which operates by restricting either the use of information or the future employment of an employee.

For a restraint covenant to be valid, courts often indicate that the employer needs to have some proprietary right in the interest sought to be restrained. Employers are, therefore, not entitled to be protected against mere competition. Legitimate employer interests which may be protected include the employer's trade secrets and confidential information, customer connections, and staff connections.

At common law, there exists an equitable duty not to misuse confidential information. The effect of the duty is that confidential trade secrets are subject to protection following termination of employment, even where there is no express contractual provision in relation to the information.

Courts have very broad powers to deal with a former employee who has abused fiduciary obligations. These powers include:

  • An injunction preventing the former employee from abusing their fiduciary responsibilities
  • Equitable damages compensating the employer for loss the employer has suffered, and
  • An account of profits that have been earned by the former employee.

In the matter of APT Technology Pty Ltd v Aladesaye, [2014] FCA 966 (5 September 2014) the Federal Court granted an interim injunction restraining a manager from approaching his former employer's clients, despite the absence of an express restraint of trade clause in his contract of employment, finding that he might still be holding confidential information that would give him an unfair advantage.

The employer terminated the employee after it discovered he had set up a business in competition with it some six months' earlier, and had used its confidential information in breach of his contract.

The employer discovered that that the employee had forwarded emails from his work account to his personal account and his new business in the lead-up to the termination of his employment. The emails contained confidential information belonging to APT, including notes and records of confidential discussions between the employer's general manager] and the employee about business opportunities in Adelaide, template documents, client reports, and information about the sale of the employer's office and software previously used in its Adelaide operations.

The employee's contract expressly required him to devote his whole "time, attention and skills" to his duties, and not engage in any business activity in competition with the company. It also said he could not use or disclose the company's confidential information for any purpose other than his role. The employee's position was significant as he was the employer's main point of contact in Adelaide.

Once the employee had been dismissed the employer had encountered difficulty in re-establishing connections with its South Australian based clients.

The Federal Court was satisfied that there was a serious question to be tried that the employee had breached his employment contract and fiduciary duties owed to the employer as there was evidence that:

  • he started to compete with the employer during his employment.
  • he had disclosed for his own purposes the contents of the employer's client databases, reports prepared by the employer and other business documentation used by the employer

Although the employee's contract did not have an express restraint of trade provision the Court granted the injunction on the basis of the equitable duty not to misuse confidential information and the "springboard principle" to prevent the employee from using its confidential information to its detriment and gaining a substantial advantage over the employer in securing the future business of its existing and former clients .

The Court is yet to decide the employer's claim for other losses that may have occurred as a consequence of the employee's conduct.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.