In a thriving economy, companies may not be as worried about
losing a little business here and there because they are likely
picking it up elsewhere. That is not the case in today's
business climate as companies are fighting and scratching to hold
onto every customer they can. In an effort to protect valuable
goodwill and assets, many employers insist that confidentiality and
restraint of trade clauses are contained in their employees'
contracts of employment. In general, these employment contracts are
used to restrict employees from competing with the employer after
their employment comes to an end.
The interests of the employer which a restraint on trade seeks
to protect is known as its protectable interests. As specific needs
have arisen, restraint clauses have acquired other names with
particular purposes. For instance, non-solicitation clauses
prohibit former employees from soliciting former clients/customers;
non-poaching clauses prohibit former employees from hiring away (or
"raiding" or "poaching") the employer's
current employees; and non-compete clauses prohibit former
employees from working in a competitive business to that of the
former employer. Whether these various agreements are separate
contracts or separate provisions in one agreement, the purpose is
usually the same - to prevent unfair competition from former
In Australia, there are two categories of enforceable and
protectable interests - goodwill, including customer and staff
relationships; and confidential information. Courts in Australia
will generally enforce restraint of trade clauses so long as they
are reasonable to protect the employer's legitimate business
interest. One way that employers can demonstrate the reasonableness
of the restraint is to limit the enforcement of the restraint to a
specific geographic area and duration that relates to the
employer's business. While the reasonableness of a restraint
likely will be examined on a case-by-case basis, a clause that
restricts an employee from competing against its former employer
for an unlimited time anywhere within the country is almost always
With respect to confidential information, Australian law
distinguishes between trade secrets of a business and the general
knowledge/skills gained by an employee during employment, or
"know-how." While a true "trade secret" is
afforded protection under the law and must never be disclosed by an
employee, the only method for protecting employee
"know-how" is through the use of an express
confidentiality provision in an employment contract. For maximum
protection, employers should refrain from trying to differentiate
between trade secrets and "know-how," and instead should
exhaustively define the protectable, "confidential"
information within the terms of the employment contract.
In the event that an employer fails to include a restraint
clause in the employee's contract, Australian law provides
other mechanisms to protect a company's confidential
information. One such mechanism is the employee's implied duty
of good faith and fidelity. This duty applies during while an
employee is working for the company and requires the employee to
not at in a manner detrimental to the interests of the employer.
For example, an employee may breach the duty of good faith and
fidelity by copying customer lists for use after employment
Another mechanism an Australian employer might use to protect
confidential information in lieu of a valid restraint clause is the
equitable duty of confidence. To enforce this obligation, the
employer must demonstrate the following elements: (1) the
confidential information is specifically identifiable; (2) the
confidential information has the quality of confidence about it and
is not common/public knowledge; (3) the confidential information
was imparted in circumstances giving rise to the duty of
confidence; and (4) there is misuse or threatened misuse of the
confidential information without the former employer's consent.
It is important for employers to note that while the duty of
confidence certainly is a useful method for protecting information,
it is by no means inclusive. Rather, it generally relates to the
misuse of trade secrets or highly confidential information.
Accordingly, the best method for protecting a company's
confidential information is to err on the side of caution and
include an enforceable confidentiality provision in each contract
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.
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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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