Australia: Are your employees' LinkedIn connections your trade secrets?

Clayton Utz Insights
Last Updated: 26 July 2014
Article by Chris McLeod and James Neil

While it's unclear if LinkedIn connections are trade secrets, employers can still take steps to ensure they don't walk out the door with ex-employees and into the arms of a competitor.

Consider this: your business, like many others, largely depends on the people within it and the relationships those people have with clients.

What if your marketing department decided to get on the front foot with LinkedIn by strongly recommending all employees establish an account, giving them a suggested format for their profiles, and encouraging them to connect with existing clients, potential clients or even old friends? So far, so good, right?

But there will come a day when one employee with over 1000 LinkedIn connections logs out of LinkedIn on the computer your business has generously provided to him for several years, shuts down that computer, walks into HR and resigns from the firm. The next day, he starts working with your competitor.

In years gone by, he might have surreptitiously taken a client list with him, slyly flashed it at his new principal, and set about soliciting work from his former employer's clients. Misappropriating and using the client list in this way would very likely have amounted to a breach of confidence, for which your business could have sought injunctive relief and, later, damages. Now, however, he simply logs into LinkedIn, trawls his 1000+ connections and sends "InMails" to a targeted set of potential "new" clients. There seems little difference in practice, but what might the law say about this?

Are LinkedIn connections "trade secrets"?

Ideally there would be express contractual provisions in the former employee's employment contract to cover this situation, but if there aren't, an employer will likely have to call upon the equitable doctrine of breach of confidence.

In simple terms, that doctrine enables an employer to prohibit a former employee from using "trade secrets" gained during the course of their former employment. A "trade secret" is secret information which is confidential to the employer, and is sometimes described as information which would cause significant harm if disclosed to a competitor. However, whether the 1000+ LinkedIn connections of your former employee (and particularly those gained during the course of his employment) could constitute a "trade secret" has not been considered by a court in Australia.

Overseas, courts have come to different conclusions. In Eagle v Morgan 2011 WL 6739448 (E.D.Pa.), the United States District Court held that an employee's LinkedIn account connections did not qualify as "trade secrets", because that information is "either generally known in the wider business community or capable of being easily derived from public information".

By contrast, in the earlier UK decision of Hays Specialist Recruitment (Holdings) v Ions [2008] EWHC 745 (Ch) a "middle ranked" employee of a recruitment firm had (while still employed) used information from his employer's client database to establish connections with his employer's clients and contacts on LinkedIn. He argued that once the contacts were uploaded and an invitation to connect accepted, the information ceased to be confidential because it was accessible to a wider audience through his network.

The Court did not think that was the end of the matter. Even if confidentiality in the information was subsequently lost, it had been transferred so that the former employee could use it, not for the benefit of Hays, but for the benefit of his new employer, which could be the basis of a claim by Hays.

So, what can businesses do to protect themselves?

It's unclear in Australia if LinkedIn contacts are trade secrets. Does this mean employers have to wait until an employee goes to a competitor and clarify the law by having a court battle over them?

Thankfully, no. Businesses can limit their exposure by taking practical and legal steps to prevent employees from using their social media accounts (and particularly connections) for inappropriate purposes, both during and after their period of employment.

Step One: ensure that employees' employment contracts have well drafted (and binding) in-built restraints prohibiting them from contacting your clients for an appropriate period of time after they leave.

Step Two: have a social media policy which employees must agree to comply with as a condition of their employment. Although its terms will depend on the nature of the business and other commercial considerations, generally it could require employees to:

  • only use social media such as LinkedIn (at least when accessed through employer-provided IT services) for the benefit of their employer;
  • delete any LinkedIn connections established during the course of their employment who are associated with clients/customers, before they leave; and
  • maintain a branded LinkedIn account linked to their employer's business and used only for such purposes. Employees should agree not to use a personal account to generate connections associated with the employer's clients/customers.

You should also consider requiring your employees to keep their connections or Facebook friends on these branded accounts confidential and not viewable by other users or the public at large. This would assist (but would not ensure the success of) a claim for breach of confidence against the employee after they leave, if necessary.

Step Three: if you become suspicious that an employee (or former employee) is using their social media connections for surreptitious purposes, you should write to the relevant social media provider and request that they preserve the data relating to the employee's account so it can be analysed at a later date, if required. In Hays v Ions, for example, the former employee tried to delete his LinkedIn account, but the operator of LinkedIn (which is based in the United States) agreed to preserve the account data for the purposes of the case. This suggests that at least some social media providers will not always ignore such a request.

Like employees themselves, employees' social media connections can be a great asset while under your business' control. Once employees leave, however, social media now allows them to take, and then use, that which they would previously have had to copy under torch-light late at night.

Accordingly, you need to think twice before overtly encouraging your employees to use social media for employment-related purposes. If you do decide to promote (or even permit) extensive work-related use of social media by your employees, your need to be aware of the risks, and how to prevent them from materialising.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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