Legal E: Safeguarding Your Confidential and Proprietary Information

Legal proceedings to recover a client base or stolen information are high stakes.  Undertakings as to damages are generally required.  Pleadings are drafted in a mad rush to attempt to obtain the all-important interlocutory injunction.  Such disputes are so disruptive, expensive and newsworthy that, unless the survival of the business is at stake, some careful thought about the pros and cons of instituting proceedings is required. 

So why don’t businesses do more to protect their valuable assets before the need to go to Court arises?

If a business has not invested in measures to protect its client base, confidential information and IP, its capacity to address threats as they arise will be significantly compromised.  Whilst there are still some legal remedies available to employers whose workers misuse their valuable information in the event that contracts, policies and procedures are lacking, the focus in these cases is on defining the employee or contractor’s duties to the business (to determine whether they have breached those duties).  If the nature of their obligation is no more explicit than to keep confidential information confidential then only the most brazen infringement of a business’ rights will be censured by our courts, and only then if you can obtain sufficient evidence of the breach.

Without a tailored definition of confidential information, contractual provisions as to rights of ownership of inventions and other IP and a restraint of trade agreement, going to court to protect your business’ information becomes a gamble.

Restraint of trade

The key to drafting an enforceable restraint of trade clause is to have your lawyer tailor it to the legitimate needs of your business.  There is no right to be protected from competition in general.  A business is entitled to use a restraint clause to remedy the disadvantage caused by a departing worker’s access to its client base or confidential information.  The legitimate interest to be protected spans only that length of time which it will take the business to redress that disadvantage. 

Policies and procedures

IT specialists play an important role in assisting with the implementation of appropriate policies and procedures for your workplace.  These govern the operation of work systems and resources that provide staff with access to clients and information.  They can prohibit use of non-company property in the conduct of work.  They can implement regular, well-publicised compliance checks on workers’ email and internet usage.  In the age of the ‘internet of things’ workplace surveillance options are extensive.  However, in exercising control over use of your valuable information you may encounter a degree of opposition which would require sensitive management.

Misuse of information

In the unfortunate event that you suspect misuse of your confidential or proprietary information, contact an IT specialist as a matter of urgency in order to obtain and preserve evidence of breach because the onus of proof in legal proceedings rests on the plaintiff.  Consider obtaining third party discovery to prove the breach has occurred but keep in mind that (former) clients may not wish to be involved in legal proceedings.

Remember that a breach does not necessarily equate to financial loss so quality legal advice should be obtained early to determine the most appropriate response to foul play; asserting your rights via correspondence only, seeking a search order, freezing order, injunction, damages, or an account of profits.  Claims for breach of copyright and corporations law can also be pursued.

Lessons for employers

Restricting an employee or contractor’s access to clients, confidential information and IP may prevent loss occurring in the first place but it will also restrict business growth.  No wonder the law recognises a business’ vulnerability in this regard by providing that employees and officers have a duty not to take advantage of access to such valuable assets. 

Unfortunately, enforcing those rights can be a challenge.  If your business’ confidential and proprietary information is so valuable that you would consider taking legal action to protect it then take the time now to put contractual and practical measures in place before the need to go to Court arises.  This will maximise your chances of success.

Annual Leave Payout Clarity

A long-awaited decision of the Full Federal Court* has confirmed that section 90(2) of the Fair Work Act requires accrued annual leave to be paid out upon termination of employment at the rate at which it would have been paid had the employee taken the leave (as per the contract of employment, award or enterprise agreement).  So for example, if an applicable modern award provides for annual leave loading, the payout should include the value of that loading.  If there is no entitlement to loading pursuant to a contract of employment, award or enterprise agreement, then payment is to be at the base rate of pay.

Section 90(2) is part of the National Employment Standards; a minimum standard for the majority of Australians.  It was drafted to ensure that employees do not suffer a reduction in the value of their accrued annual leave upon termination of employment.  So if an enterprise agreement provision is less generous that’s not a licence to breach section 90(2), it’s just a confusing inconsistency.

Lesson for employers

When in doubt, offer workers the more generous entitlement.  Or call your lawyer.

*Centennial Northern Mining Services Pty Ltd v CFMEU [2015] FCAFC 100

The First Reported WHS Enforceable Undertaking in SA

Adelaide Resource Recovery Pty Ltd (ARR) operates a recovery and recycling facility at Wingfield.  Some of its processing operations provide people from disadvantaged backgrounds the opportunity to engage in employment.  One such employee lost the tip of his thumb when he breached a Safe Work Method Statement by failing to isolate power to a conveyor belt before inspecting a malfunction.

It’s the same old story; the business had WHS measures in place but due to regular plant breakdown the fixed guarding to the conveyor belt had been removed.  SafeWork SA alleged a Category 2 breach of the Act which carries a maximum penalty of $1.5m.  Instead of defending a prosecution, ARR undertook to rectify WHS issues by upgrading plant, engaging a full time safety inspector and filling a gap in WHS training by developing with Mission Australia a WHS training program tailored to meet the needs of the disadvantaged. 

ARR spent over $200,000 on rectifications and SafeWork SA will conduct compliance audits into the future but I think we can all agree that this money was more productively spent on innovative safety programs than high stakes legal proceedings.

Lessons for employers 

Like many other South Australian businesses, ARR spent a significant sum on obtaining certification that it was compliant with the Australian Standard in OH&S Management Systems.  However, such systems can be unwieldy and removed from everyday operations.  ARR improved safety by taking very simple measures:

  1. remembering the hierarchy of controls (prefer engineering to administrative controls – see WHS Reg 36 for more detail);
  2. increasing frequency of site safety walks; and
  3. increasing consultation with workers.

WHS isn’t rocket science and ticks in a box don’t necessarily ensure a safe workplace; there’s no substitute for first-hand knowledge of business operations. 

The enforceable undertaking in this instance appears a positive, if expensive, outcome to a very unfortunate accident.  However, WHS in South Australia is indeed high stakes.  The first thing to do when SafeWork SA comes calling remains the same as always; call your lawyer. 

This e-alert was prepared by Thea Birss, Senior Associate at Mellor Olsson.

For assistance in reviewing your business’ measures to protect its valuable information please contact:

  

Joanna Andrew, Partner 
Ph: (08) 8414 3454
e: jandrew@mellorolsson.com.au 

Tim Mellor, Partner
Ph: (08) 8414 3416
e: tmellor@mellorolsson.com.au

  

  

Elizabeth Olsson, Senior Solicitor  
Ph: (08) 8414 3413
e: eolsson@mellorolsson.com.au

Thea Birss, Senior Associate 
Ph: (08) 8414 3415                         
e: tbirss@mellorolsson.com.au

 

  

Maria Demosthenous, Senior Associate 
Ph: (08) 8414 3418
e: mdemosthenous@mellorolsson.com.au

The contents of the e-alert are for general information only. They are not intended as professional advice - for that you should consult a solicitor or barrister, or any other suitably qualified professional such as your accountant.

Practice Area: Employment

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