In Europa International Pty Ltd v Child [2016] NSWSC 923, McDougall J dismissed an application by an employer for an injunction to restrain former contractors from using allegedly confidential information to aid competitors.
In so doing, McDougall J provided some valuable guidance to employers that reveals many of the pitfalls and problems associated with standard form confidentiality provisions in employment contracts.
What is confidential information?
Courts adopt a relatively flexible approach when determining whether information is confidential for the purposes of granting an injunction. Courts do not “slavishly” adhere to one particular test or standard, not do they apply broadly drafted confidentiality clauses at face value.
Rather, there are a range of factors which a court may consider in the circumstances of each particular case. They include, but are not limited to:
- The extent to which the information is known outside the employer’s business.
- The level of skill and effort expended by the employer in developing the information.
- The extent to which the employer closely guards the secrecy of the information, such that it is difficult for a third party to acquire it.
- The extent to which the employer made it known to the employee or contractor that the employer regarded the information as confidential.
- Whether similar information is regarded as confidential in the relevant industry.
- The extent to which it is important to the employer that confidentiality is preserved.
- Whether the employer makes the information freely available to all employees and contractors, or whether the employer only makes the information available to senior employees or employees with special responsibilities.
Confidential information is not property
Poorly drafted employment contracts are often replete with references to ‘proprietary information’. As McDougall J forthrightly explained, an employer cannot hold property rights in or over information.
In this regard, employers should be careful to distinguish between their confidential information and their intellectual property. A failure to do so could lead to problems when attempting to enforce confidential information provisions.
‘Know how’ is not confidential information
McDougall J explained that employers cannot use confidential information provisions to prevent employees or contractors from exploiting the “know-how”, or “general skill, knowledge and experience,” that they gain during the course of their employment. This is the case even if the know-how is based on confidential information which is given to employees or contractors during the course of their employment. In this regard, it is possible for confidential information to become part of an employee’s know-how such that it is put beyond the control of the employer.
Employers need to identify confidential information if they want an injunction
Employers who want to apply for an injunction restraining former employees and contractors from misusing intellectual property must precisely specify the confidential information that they wish to protect. It is not sufficient simply to rely on the broad categories of information identified in a confidentiality clause, or to refer to documents without specifying their contents.
Takeaways for employers
There are a number of key takeaways from McDougall J’s decision:
- Broadly drafted standard term confidentiality clauses are unlikely to be enforceable by injunction to their fullest extent.
- Employers should identify what commercially valuable information that they wish to protect by way of a confidentiality clause, and take steps to ensure that the information has the necessary ‘quality of confidentiality’ by guarding its secrecy, restricting its circulation amongst employees, and informing all employees who have access to it that it is confidential.
- Know-how is not confidential information. A former employee or contractor cannot be prevented from using it by way of a confidentiality clause.
- Confidential information is not property.
- Employers must specify the particular information that they wish to protect if they apply for an injunction.
How can JFM Law help?
If you are an employer looking to enforce a confidentiality or restraint clause in an employment contract or seeking to draft or revise your current contracts, or if you are an employee with a confidentiality or restraint clause in your employment contract looking for some advice, contact JFM Law on (02) 9199 8597 for a no obligation chat. If you would rather get in contact through email, send your question through or by email at wehelp@jfmlaw.com.au
The information contained in this post is current at the date of editing – 27 November 2023.