Senior or executive staff resigning and taking valuable customer and confidential information with them could result in extensive damage to a business. Post-employment restraints or restraints of trade clauses, that come into effect after employment ends, can protect the legitimate interest of the employer.
Protecting your Confidential Information with a Confidentiality Agreement
Are you thinking to have your employees sign a Confidentiality Agreement? Having a Confidentiality Agreement helps you assure that your company information is not disclosed to any third party even after they stop working for your company.
An employee confidentiality/non-disclosure agreement (Confidentiality Agreement) is a contract with your employees. In the contract, you identify certain categories of information that are confidential and promise to let your employees use the information. In exchange, your employees promise to not disclose or use the information for any other purpose — even after they stop working for you.
Courts will enforce your Confidentiality Agreement to the extent required to protect your legitimate business interest. What does this mean? Fortunately, courts recognise that protecting confidential business information is a legitimate business interest. But the information must actually qualify as confidential. If your information is not confidential, courts will not likely enforce your Confidentiality Agreement.
So what constitutes confidential information? Courts look at the following factors to determine whether business information qualifies as confidential:
- Is the information already known outside the business (i.e. is it public information?)?
- The measures taken to guard the secrecy of the information.
- The value of the information to the employer and its competitors.
- The amount of effort or money spent by the employer in developing the information.
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
These factors are balanced to determine whether your information actually qualifies as confidential and/or a trade secret.
Fortunately, the standard is not that difficult to satisfy. The following types of information have been found confidential in the right circumstances: manufacturing processes, price lists, marketing plans, customer list, business plans, financial information, software, and lots of other types of information. So chances are good that your business has confidential information that needs protection.
Benefits Of A Confidentiality Agreement
So let’s presume that your business has confidential information that it wants to protect. Why do you need a Confidentiality Agreement? Here are some good reasons:
Basic Protective Measure
A Confidentiality Agreement is considered one of the most basic protective measures that a business can take to protect its confidential information. If your business does not take this step, future attempts to stop former employees from using your confidential information may be viewed with scepticism by the courts. It’s not impossible but why make your job more difficult?
Identification Of Confidential Information
A Confidentiality Agreement lets your business specifically identify what categories of information that are confidential and secret. For example, if your business views its pricing or customer lists as confidential, these categories of information should be explicitly identified in the Confidentiality Agreement.
By identifying specific categories, you inform your employees what types of information are confidential and should be handled with care. This lets your employees know that the information is valuable and important and should not be shared with others or left out in the open for everyone to see. Specific identification also prevents a former employee from legitimately claiming that he did not know what information was confidential or secret.
Be advised that you probably can’t claim everything in your business is confidential. Courts do not look kindly on employers who are patently unreasonable and are simply trying to prevent former employees from working in their chosen profession and using their general knowledge, skills and experience to make a living. If your categories of claimed confidential information are overly broad and obviously not confidential, courts may not enforce your Confidentiality Agreement.
Your Confidentiality Agreement can also specify that your business will be irreparably harmed by a breach (or threatened breach) of the Confidentiality Agreement. This makes it easier to obtain an injunction that stops your employee from disclosing your confidential information.
Courts are hesitant about granting injunctions. One reason is that you must prove that your business will suffer irreparable harm by the employee’s actions. This can be difficult to prove because most harms can be fully compensated by an award of monetary damages.
A well-drafted Confidentiality Agreement pre-emptively solves this problem or at least makes it easier to solve. This is done by inserting a clause whereby an employee agrees that your business will be irreparably harmed by disclosure of your confidential information to someone else. This is a reflection of business reality and makes it easier to prove in court to obtain an injunction.
If your business is thinking about having your employees sign a Confidentiality Agreement, or have already decided that you need one, contact Allied Legal for guidance. Allied Legal’s Melbourne commercial lawyers are well placed to assist with such arrangements and your other commercial legal needs.