It is now increasingly important to take proactive steps
as an employer to protect your business interests in
situations where former employees set up in competition with
your business. Given the unprecedented value of
confidential information and intellectual property, these
disputes can mean the difference between success or failure of
your commercial venture.
All employees owe their employer a duty to maintain
the secrecy of all the employer's "confidential
information" obtained during the course of their
employment. This is a duty implied by the law into all
employment contracts (unless the duty is expressly removed by
way of a written contract). However, the duty extends only to
"confidential information" which would be regarded
as essentially a trademark secret of the employer. It may not
extend to what is commonly thought to be
"confidential" information. For example, the fact
that your business may keep a client database or client list
does not necessarily mean that it is protected by the duty. It
will not be protected if the database or list is not treated
by your business as a secret document or is sometimes
disclosed in full or part to your customers and clients in the
course of your business. Similarly, if an employee is not made
aware that a particular piece of information is to be treated
as highly confidential, then protection from the implied duty
may be lost. It is very important to examine what information
your business considers confidential and take steps to protect
Confidentiality agreements are a very effective way
of protecting confidential information of a business
and providing you with a remedy should you find yourself in
the unfortunate situation of a former employee setting
up business in opposition and utilising that information
Confidentiality agreements are binding
contractual agreements which can be enforced in the Courts,
including obtaining injunctions to prevent your former
employee using the information, as well as claiming damages
that may have arisen as a result of the wrongful use of
An employee is entitled, however, to use the skills
and knowledge acquired in the course of his or her working
life and it is important to obtain advice as to what
information can be protected and what cannot be protected and
to make sure the confidentiality agreement is properly
Restraint of Trade
Increasingly, employers are utilising restraint of trade
clauses or non-competition clauses within their employment
contracts in an attempt to prevent a former employee setting
up in competition against the business.
Generally there are two types of restraints in place. The
first is a restraint which prevents a former employee
from soliciting business or custom from the business's
existing clients, customers or suppliers whom the employee
dealt with during the course of their employment. The second
type of restraint is more broad and attempts to prevent the
former employee themselves from working with a competitor of
the business for a period of time in a certain geographic
Generally, in New South Wales a restraint of trade will
be valid so long as it is clear and reasonable. It is very
important to have such clauses drafted carefully so that they
are not subject to be being struck out by a Court just when
you are trying to enforce them. Restraints of trade can be
very effective tools in protecting your business and are a
relatively low cost investment which may save the business
completely at the end of the day.
Your business may also have a trademark or
other intellectual property such as a training guide,
portfolio guide or related publication which should be
protected from other businesses. This also extends to material
on the internet which could prejudice your business if it is
not properly protected. It is important as part of a review of
your confidential information to examine whether further
statutory protection is necessary.
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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