With the ease of copying large amounts of data and the ubiquitous use of laptops and smartphones, can businesses protect against former employees using their customer or client lists in their new employment or business role.
A common scenario a business may face is where an executive or senior employee resigns, commences employment with a competitor and then by not sheer coincidence the competitor is contacting its customers.
Trade secrets are confidential to an employer. Know-how and trivial information is not inherently protected. A trade secret is information confidential to the employer which if disclosed to a competitor would cause real or significant harm to the business. In a recent New South Wales Supreme Court decision it was held that the details of customers are confidential to the employer. The general principles are:
- An employee is not free to use client or customer information obtained or accessed during employment;
- An employee cannot copy or remove date from the employer by electronic copy, handwriting or committing to memory client details;
- An employee can approach a customer or client whom that employee can recall without a list or deliberate memorisation.
What can the employer do?
For the purposes of prevention, the employer should ensure that there is a precise and clear obligation of confidentiality imposed on the employee under their employment contract.
In addition the employer should consider drafting a carefully constructed restraint of trade clause which prohibits the employee from conducting their affairs whether in new employment or on their own behalf, which competes with its business or takes business away from its clients. Such restraints are more reasonable for employees who are in senior positions or positions where they have significant responsibility for customer relationships.
You will need to make an assessment of what information is confidential to the business. For example, customer lists should only be made accessible to the employees that require use of them. If you are able to monitor use and copying of such information, it is recommended to implement those systems.
When you are made aware of an employee’s departure you should immediately seek the repossession of company laptops and smartphones. If an employee uses their own computer or mobile phone for work purposes, then you should ensure you have employee exit processes in place which requires them to delete or handover all work related materials. It is also an important time to remind them of their confidentiality obligations. Any additional payments you may have agreed to pay on termination should be tied to the employee complying with agreed exit procedures.
What can you do if there is a breach?
If you are made aware of a former employees’ breach of their confidentiality obligations or non-compete obligations you may seek orders against them to hand over any lists and to prohibit them from using such information. Alternatively, if the behaviour continues after a demand to cease remains unheeded, you may seek a damages claim for loss of revenue lost because of the breaches.
Director – Corporate and Commercial
A+F Commercial Lawyers offers specialist legal advice to assist in the establishment, expansion, operation and divestment and acquisition of businesses and corporate groups.