You run a successful business. You pride yourself on keeping one step ahead of your competitors. This means that you keep a tight lid on your confidential information. What would you do if one of your senior employees left the business and started offering a very similar product or service?
I have previously written about how employers can enforce confidentiality clauses and fiduciary duties to protect their interests. Employers can also make use of s 183 of the Corporations Act 2001 (Cth) as Perram J explained in TICA Default Tenancy Control Pty Ltd v Datakatch Pty Ltd [2016] FCA 815. This section is particularly useful for pursuing former executive employees who have used your information to set up a competitive business.
The Facts
In TICA v Datakatch, three former managers of TICA Default Tenancy Control Pty Ltd (‘TICA’) incorporated a company called Datakatch Pty Ltd (‘Datakatch’). Datakatch ran an online tenancy information system that was strikingly similar to the tenancy information system operated by TICA. TICA alleged that Datakatch had copied the TICA system, and that the three former managerial employees had misused TICA’s confidential passwords for the purposes of copying that system.
Section 183
Section 183 of the Corporations Act 2001 (Cth) obtains information because they are, or have been, a director, officer or employee of a corporation must not improperly use the information to gain an advantage for themselves or for someone else, or to cause detriment to the corporation.
Advantages of s 183
First, s 183 catches situations in which the director, officer or employee makes use of confidential information after they have resigned or been terminated. For example, inTICA v Datakatch, one of the former managers had used the confidential passwords to access TICA’s system after they had ceased to be a manager.
Other provisions of the Corporations Act 2001 (Cth) only have an effect whilst the person is a director, officer or employee. This can make them a blunt instrument against former executives who misuse information after they have ceased to be an employee.
Secondly, it applies to managers who may not be covered by a contract of employment. For example, in TICA v Datakatch, it was unclear whether the former managers were contractors or employees. Because s 183 applies to ‘officers’, it attaches to anybody “who makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the corporation”. In this regard, s 183 avoids the need for complex arguments about whether an executive is an employee or a contractor.
Lessons for Employers
Employers like you should be mindful that s 183 provides you with an alternative avenue for holding former executives to account if they have misused your information after they have left your business. It should form part of an overall confidential information protection strategy that involves:
- Strong confidential information provisions in employment contracts.
- A clear workplace policy concerning the use and identification of confidential information.
- A readiness to take one or more of the avenues for legal redress in an appropriate situation.
How can JFMAndreyev help?
We can review and audit your existing practices for a cost-effective fixed fee, and assist you to put in place new policies and contractual clauses. Contact JFMAndreyev 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@jfmandreyev.com.au
The information contained in this post is current at the date of editing – 27 November 2023.
