Australia: The law of confidential information – Leave the customer list behind

Introduction

Employers often provide their employees with commercially sensitive and confidential information in the course of the employment relationship. But what happens to that confidential information when the employment relationship ends?

In the absence of a valid restraint of trade clause, a former employer cannot prevent a former employee from simply competing.¹ However, a former employee has an equitable obligation not to disclose or misuse a former employer's confidential information.

Under the Corporations Act 2001, a person who obtains information because they are, or have been, a director or other officer or employee of a corporation, must not improperly use the information to:

• gain advantage for themselves or someone else; or
• cause detriment to the corporation.²

This update focuses on the all too common scenario involving a former employee who uses, to his or her advantage, contact details of a former employer's clients.

Is the client list confidential?

Whether a client list is confidential information or not will depend upon the particular facts and circumstances of each case.³ Generally speaking, a customer list will be confidential if it is treated as such, and represents the result of work done by the employer.

In N P Generations Pty Ltd v Feneley,⁴ the Supreme Court of South Australia considered the extent to which a former employee in a real estate business could take from the business and use a list of clients (commonly known as "the rent roll").

While employed by the appellant as a property manager, the respondent kept a diary for the year and an address book. Both the diary and address book contained information handwritten by the respondent, including the names, addresses and telephone numbers of the appellant's clients. When her employment was terminated, the respondent took the diary and address book with her.

The address book

The address book contained 115 separate entries, 65 of which were for landlords who had engaged the appellant to manage their property. Even though the respondent had created the address book legitimately for the purpose of carrying out the duties for which she had been engaged to perform, the Court found that the list of names and addresses were confided to the respondent for a specific and limited use, namely, to enable her to manage the appellant's rental property business. Therefore, once her employment ended, she could no longer use the list or any copy of it.

As a result, the respondent had an obligation to return the address book (and any copies) to the appellant at the end of the employment relationship (after being given an opportunity to make a copy of any personal entries).⁵

The diary

The diary was clearly a work diary, and the vast majority of the entries related to the respondent's duties in her employment. Included in the diary were the names of some landlords as well as the addresses of some rental properties (which could conceivably be used to assist in preparing a list of rental properties and names of landlords). However, unlike the information in the address book, the information in the diary was not compiled from the rent roll. The information in the diary was entered as a result of telephone calls or other correspondence between the landlords and the respondent, and it was clear that a considerable degree of other work would be required to ascertain the addresses and telephone numbers of the landlords.

Further, the diary contained information which would fairly be described as part of the respondent's general knowledge, skill, and experience. For those reasons, the diary did not constitute confidential information, and the respondent had no obligation to return it to the appellant on termination of her employment.

Preventative strategies

Even though an employer has a potential remedy against a former employee who takes advantage of a confidential client list, commencing legal proceedings to bring the former employee to account can be an expensive process. The employer will also bear the burden of proving that the former employee has actually used the list, and has not simply remembered the names of the customers and found their contact details online, or in the phonebook.

Simple strategies should be considered to deal with employees who will be, or have been, provided with confidential or commercially sensitive information in the course of their employment:

• Provide employees with a company email address, and company equipment such as a mobile phone and laptop if required, which are to be returned at the end of the employment relationship.
• Ensure employees are clearly and verifiably informed of the confidentiality of information to which they have access.
• Ensure exiting employees return all copies (whether paper or electronic) of confidential information before they leave.
• Remind exiting employees on their departure of their obligations in relation to the use of confidential information.

However, the protection of a business's confidential information and intellectual property generally, is a critically important exercise for which professional advice and assistance should be sought.

Footnotes

¹Stenhouse Australia Ltd v Phillips [1974] AC 391 at 400.
²Corporations Act 2001, s 183.
³Faccenda Chicken Ltd v Fowler [1987] Ch 117 at 136.
⁴[2001] SASC 185,
⁵N P Generations Pty Ltd v Feneley [2001] SASC 185 at [20]

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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