Workplace Relations Update - December 2007

Contents

• Is That The Sound Of Your Intellectual Property Disappearing?
• Privacy – Employee Records Exemption Under Review
• The Common Law Throws Unfair Dismissal A Lifeline

Is That The Sound Of Your Intellectual Property Disappearing?

A recent New South Wales Court of Appeal decision of Del Casale & Ors v Artedomus (Aust) Pty Limited [2007] NSWCA 172 has highlighted more than ever the importance for employers to protect their confidential information with clear and concise contractual provisions.

In the absence of a contractual provision specifically relating to maintaining confidentiality, employers are reliant on both the duty of good faith as an implied term in an employment contract, and the duty of confidentiality, which is an obligation arising under equity or through the Corporations Act 2001 (Cth), where applicable.

During the course of employment, confidential information is protected by an implied term of good faith in the employment contract. However, the duty is only breached by the misuse of 'secret' information. As highlighted in the decision of Del Casale & Ors, once the employment ceases, in the absence of an express confidentiality provision, the issue of confidentiality is dealt with under general equitable principles and is not well protected by implied terms in the employment contract.

This is because an employee’s duty of fidelity owed to an employer, which includes:

• faithful service

• acting in the employer’s best interests

• not earning secret commission

• accounting to the employer for profits,

only operates whilst the employee remains in employment.

The duty of confidentiality owed by an employee to an employer, however, remains binding, albeit in a restricted sense, even after the termination of the employment relationship.

The judgment of Hodgson JA with McColl JA agreeing, noted the importance of drawing a distinction between what is 'secret' information and what is 'general know-how'. Secret information cannot be used by ex-employees but general know-how may be used, unless there is a valid contractual restraint in place.

The Court held a former director and employee of Arte Domus (Aust) Pty Ltd had not breached the duty of confidentiality for reasons that the information in question had not been disclosed for use by others. The following factors were identified to be taken into account when deciding whether information was 'secret' or 'general know-how':

• the extent to which the information is known inside and outside the business organisation

• the value of information to competitors

• the effort spent in developing the information

• the difficulty in acquiring or duplicating such information.

In short, if the confidential information can be readily distinguished from an employee’s 'general know-how' and is not ascertainable by enquiry or experiment, then it is more likely to be treated as confidential.

Employers should not seek to rely on implied terms and equitable obligations to maintain confidentiality. Instead, they should include a carefully drafted term in an employment agreement or alternatively, enter into a separate confidentiality deed, to ensure that an employer’s best kept secrets remain just that, secret.

Privacy – Employee Records Exemption Under Review

The Australian Law Reform Commission (ALRC) has recommended that the exemption from privacy laws applying to private sector employee records be repealed.

Currently, acts and practices of an organisation are exempt from the Privacy Act 1988 (Cth) (Act) if they are directly related to a current or former employment relationship and to an employee record held by the organisation. The Act defines an "employee record" to mean a record of personal information, relating to the employment of the employee and includes information in respect of the employee, such as:

• engagement, training, disciplining or resignation of the employee;

• termination of the employee’s employment;

• employee’s terms and conditions of employment;

• employee’s performance and conduct; and

• information such as personal and emergency contact details, remuneration, association memberships, leave entitlements and taxation, banking or superannuation affairs.

Employers should follow these developments closely and we will keep you informed with further updates as more detail emerges.

The Common Law Throws Unfair Dismissal A Lifeline

Employers should be aware of their duties to act in good faith and of mutual trust and confidence which are implied into employment contracts, further to the recent ruling of Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney & Anor [2007] NSWSC 104. In this case, in the New South Wales Supreme Court, Rothman J held that there are implied duties of mutual confidence and good faith in employment contracts.

The Court found that the Catholic Church had breached its contract of employment with the choir master of St Mary's Cathedral because it inadequately investigated sex abuse allegations that led to his employment being terminated.

In essence, the claim revolved around allegations that the Church had breached two implied terms of the employment contract, namely that the Church:

• would act in good faith towards the employee in the administration of the contract of employment

• agreed not to behave in a manner calculated, or likely to "destroy or seriously damage the relationship of confidence and trust between the parties", or in the alternative would not conduct itself in such a manner "without reasonable or proper cause".

The Court held that a duty of good faith was implied into the employee's contract of employment. Rothman J noted that the parties envisaged a continuing, indefinite period of employment and during that period, the Church was required to exercise its rights under the contract in a manner which directly affected the employee and which were not discussed (and perhaps not foreseen) when the contract was formed. Rothman J held that, in the circumstances, it was impossible to imagine that the contract of employment could operate without a duty of good faith. This duty meant that the parties needed to exercise their right and obligations:

• honestly and reasonably

• with prudence, caution and diligence

• with due care to avoid or minimise adverse consequences to the other party that are inconsistent with the agreed common purpose and the expectations of the parties to the contract.

In addition, Rothman J held that without trust and confidence, there can be no contract of employment. This was because if an employee destroys the trust of the employer (necessary for the carrying out of the work), the employer would be unable to allow the employee to work and bind the employer. If the employer destroyed the trust of the employee necessary for the giving of directions, the whole basis of the employment relationship ceases. Accordingly, Rothman J held that the duty not to act in a manner calculated or likely to destroy the relationship of mutual trust and confidence cannot be excluded from a contract of employment.

Rothman J also held that the duty will not interfere with the right of a party to terminate the contract but noted that the term could operate in the process of termination.

Despite the Court's finding that the Church had breached its implied duties, on the particular facts of the case, the Court rejected the claim for damages on this occasion. However, there are already at least two other claims underway in other common law courts spring-boarding on the back of this decision.

Due to implied terms of good faith and of mutual trust and confidence in employment contracts, employers should ensure that when engaging in disciplinary investigations in relation to an employee's alleged misconduct, or dealing with disciplinary matters that may lead to termination, that they properly investigate such matters. In investigating such matters employers should ensure that detailed reasoning and cogent evidence exists to defend any decision to terminate or they may find themselves potentially exposed to liability.

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.