Make sure it is in writing! Protecting your confidential information when employees leave

Plus One International Pty Ltd v Ching (No 3) [2020] NSWSC 1598 (13 November 2020)

Summary – protect your information!

In a recent case where there was no written contract of employment, the Supreme Court of NSW nevertheless found that former employees had breached implied contractual obligations of confidence. 

This should give employers some comfort that, in some cases, confidential information can be protected even where there is no written contract document. Nonetheless, this case demonstrates the need to have sound policies and procedures in place, backed up by written contractual obligations, to protect commercially sensitive information at the end of employment.

Overview

Plus One International Pty Ltd (POI) provide advisory and consultancy services in education and migration, principally to international students. Yiu Tung Ching and Jieyi Lu were employees of POI. There was no written contract of employment.

While they were employed, the Defendants would use their own mobile phone to access an application called “WeChat” to communicate with clients who predominately resided in China. Personal contact information of clients was therefore stored on the Defendant’s personal mobile device. POI also used a Google Drive account to store, amongst other information, contracts between POI and educational institutions.

The Defendants resigned from POI. They did not return or destroy the relevant information and instead set up a rival company which started to compete with POI.

POI’s case

POI sued the Defendants and sought damages for breach of contract, injunctions requiring the return of the information and an account of profits.

POI argued that the Defendants used personal information belonging to POI which was stored on WeChat and Google Drive to steal clients from POI.

The Decision

The Court confirmed that under s 182 and s 183 of the Corporations Act 2001, employees must not use information imparted on them in their capacity as an employee to gain an advantage for themselves, or to the detriment of their employer.

The Court went on to find that in this case, the Defendants owed a duty of confidence to POI and that obligation arose by way of an implied term of the contract of employment. It followed that misuse of information imparted on an employee, in their capacity as an employee, amounted to a breach of the contract entitling POI to damages.

The Court ordered that the Plaintiff be awarded damages for the breaches of contract and determined that an injunction for the return of confidential information is appropriate.

By finding contractual breach of an implied term, the Court did not consider it necessary to determine the question of equitable compensation for breach of confidence.

Key takeaway – still get it in writing!

The best way to prevent confidential information being taken by former employees is to implement sound information management practices and procedures, backed up by clear contractual obligations and processes for the return of information when employment ends. This gives the best chance to avoid needing to take legal proceedings to get that protection.

However, this case demonstrates that even where there are no such protections in place, it will still be possible in some cases to get legal relief to protect confidential information for your commercial interests.

If you have any queries or would like further information regarding this article, please contact:

Brett Cassidy
Principal
M: 0438 368 053
E: bcassidy@pageseager.com.au

Joe Mullavey
Senior Associate
M: 0416 794 061
E: jmullavey@pageseager.com.au

Caleb Devine
Lawyer
T: (03) 6235 5125
E: cdevine@pageseager.com.au

Published: 19 November 2020

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