Breach of Confidentiality – An employee has been ordered to pay his former employer $205,647.00

Breach of Confidentiality – An employee has been ordered to pay his former employer $205,647.00

Many employers are concerned about the damage an employee could do if they were to take the company’s confidential information with them to a new employer.

This is a common fear but fortunately only realised by very few employers.  However, when an employee does breach the obligations of confidentiality they owe to an employer, the consequences can be significant.

In a recent case before the Federal Court of Australia, an employee was ordered to pay his former employer $205,647.00 as well as having an injunction imposed against him, restraining him from disclosing to any person any of the former employer’s confidential information.

The Facts

The case is SAI Global Property Division Pty Ltd v Johnstone [2016] FCA 1333 (14 November 2016).

In this case, Mr Johnstone was employed by SAI Global Property Division Pty Ltd as their Business Development Manager.  He was employed for a period from August 2015 to 12 November 2015.

Mr Johnstone resigned from his employment on 29 October 2015.  Three days before his resignation, he copied two computer files to a USB device which contained highly sensitive confidential information, including one document containing details of his then employer’s customers.

Following his resignation, Mr Johnstone was called to a meeting with the company’s HR Manager who provided him with a letter confirming his resignation and outlining his post-employment restraint obligations.  It also included a direction that Mr Johnstone was not required to work or attend the office during his notice period, however he would be required to respond to questions and queries until close of business 12 November 2015.  Accordingly, the last day of his employment would be Thursday 12 November 2015.

Despite this, Mr Johnstone accessed the Company’s confidential information again, with a view to identifying which customers of his then current employer were not customers of his new employer and on 2 November 2015, commenced employment with his new employer, a direct competitor of his former employer.

During the court proceedings, Mr Johnstone admitted that he had breached his employment contract by continuing to receive his salary from his employer while having commenced employment with his new employer and admitted infringing the company’s copyright in relation to the computer files that had been accessed.  Under cross-examination, Mr Johnstone admitted that he knew the documents he had copied contained confidential information, that he did not ask permission to copy the documents, he did not consider that he was permitted to copy the documents and he knew that if he had asked permission to copy the documents this would have been refused.

At court, the former employer sought:

  1. An injunction restraining Mr Johnstone from using their confidential information;
  1. $4,230.00, representing the salary Mr Johnstone had been paid for the two week period following his resignation, during which he had commenced employment with his new employer;
  1. Nominal damages of $1.00 for copyright infringement;
  1. Additional damages of $5,000.00 pursuant to the Copyright Act; and
  1. Costs in the amount of $275,469.00.

The Court agreed that the former employer was entitled to each of the above, however considered the amounts sought for costs to be excessive in the circumstances.  Accordingly, the order for costs was that the employee pay the amount of $196,416.00 in costs.

Lessons to be learnt

This case is a timely reminder that employees can do significant damage to your business if they breach confidentiality.  To protect an employer’s confidential information and give them clear rights to pursue an employee or former employee for breaches of confidentiality, there should be clear obligations in the contract of employment with regards to how confidential information is to be treated during employment and after employment.

Additionally, of great significance in this case was that immediately after Mr Johnstone had resigned, he attended an exit interview where he was advised verbally and in writing of his post-employment expectations.  Accordingly, in circumstances where an employee leaves your employment, whether you have terminated their employment or they have resigned, it is important to provide them with a letter outlining the reasons for the termination or acceptance of their resignation and then remind them of their obligations with regards to confidentiality and post-employment restraints.

If you need us to look at your contracts of employment or letters provided to employees at the end of their employment, or have any questions regarding this case, please get in touch with one of the team from HR Law today.

1 Comment
  • Sandy Louwrens
    Posted at 02:41h, 20 January Reply

    My Employer is a Broker who represents 10 Manufacturers and Importers.
    He is paid commission by them to have sales reps on the road calling on the End Users in the Food Service Industry.
    My position as a Sales Rep was made redundant and I was re employed as a Telesales person.
    The customers will now be getting a phone call only from a team of Telemarketers from an office in Sydney.
    He hasn’t told the Companies he is representing that the Sales reps have been taken off the road and now are Telemarketers.
    My wage was reduced by half.
    We were told to avoid the Truth in our reports so the Principals / Manufactures so they won’t know we are phoning and not calling in person.
    I have given two weeks notice because I don’t want to lie.
    He doesn’t want me to work out my notice but won’t pay me in advance.
    He has threatened me by saying he will say nice things about me and keep my Integrity in tact in the Food Service Industry if I do the same for him.
    One of the Manufacturers phoned me to ask when I can be in Coffs Harbour. I had to tell him I am no longer on the road so now he knows the customers are only getting a phone call.
    Where do I stand if he goes to my ex boss and says I told him what the new structure is even though I did not make the phone call.
    My ex boss talks about a contract but when he made my position as a sales rep redundant they didn’t do a new contract , only an employment offer that says nothing about talking to the Manufacturers/Principals.
    Because he is not paying out my notice until the 29th Jan what happens if he finds out I have spoken to the manufacturer about everyone being Telesales.
    He is being deceptive and dishonest and I refuse to be a part of it.
    I had a week off sick and thankfully found another job.
    At 66 years of age and a Widow I have no one to protect me against his repeated bullying and threats.

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