Doctrine of Confidentiality

Introduction In every business enterprise, there is certain information that employer’s wish to remain confidential. This is particular vital in the global era where there is lower job security, higher job mobility and situations where employees work multiple jobs. Employees are bound by the duty of confidentiality, where they are forbidden to disclose certain information obtained during the course of employment. The purpose of this paper is to explore the nature and extent of this duty of confidentiality and legal options available to the employer if this duty is breached.

The main focus will be on the application of this duty towards customer lists. What is the nature of the duty of confidentiality? Firstly, it is imperative to analyse the term, ‘confidential information’. Confidential information is often thought to be a form of property, but in Breen v Williams, Chief Justice Brennan stated that what is important is the nature of the relationship and not the particular information itself.

Thus, confidential information can be classified as information supplied during a relationship of confidence and it is inherent in that relationship that the information is to remain confidential. Hence, the duty of confidentiality is equitable, as it imposes a personal obligation on the person who knows the information not to disclose it. This has been unanimously approved in the High Court Case Farah Constructions Pty Ltd v Say-Dee Pty Ltd. President Kirby further developed this doctrine by listing factors which helps in determining whether information is confidential in Wright v Gasweld Pty Ltd.

Factors which suggest that information is confidential are if it required skill and effort to acquire, whether the employer had guarded the information cautiously, or the employee is made aware that such information is confidential. What is the extent of the duty of confidentiality? In Dale Casale v Artedomus, it was decided that public information was not information protected under the duty of confidentiality. This decision is appropriate because public information is accessible by anyone and it would not be practical for former employees to be obligated to keep it a secret.

Additionally, employees’ know-how and skill cannot be confidential information (Triangle Corp Pty Ltd v Carsnew ) because know-how and skill cannot be restrained or taken away. This reinforces the idea that labour is not a commodity. Humans have the capacity to develop their skills and knowledge which ultimately becomes a part of them and cannot be appropriated by anyone. The duty of confidentiality being equitable in nature means it is applicable to employees during and after employment.

In Robb v Green, an employee does not have the right to take away a list of customers under the duty of confidentiality, because it requires ‘skill and effort’ (Wright v Gasweld Pty Ltd). This doctrine has also been supported in Faccenda Chicken v Fowler. The rationale is that many effort and time had been invested into building a customer list, and it would be unjust if someone takes something away that took years to develop. Equity would balance the ‘springboard’ effect enjoyed by the former employee by awarding an account of profits for the former employer.

It is notable that the remedy will only be for a certain period to negate the unjust advantage obtained by exploiting the confidential information. It should be noted that if the employee conjured the customer list using their memory, there will be no breach of duty (Faccenda Chicken v Fowler) because it is part of the employee’s know-how and skill. What can the employer do to protect their interests? Employers can prevent information from being disclosed using an express covenant, but the restraint must be reasonable and it will be nullified if it is an illegal restraint of trade.

The aim of an express restraint is to protect the employer’s legitimate interest, which is to protect truly confidential information from disclosure or preserve special ‘customer connections’. The type of information that the employer wishes to prevent from being disclosed must meet the criteria of confidential information outlined in Wright v Gasweld Pty Ltd, to ensure that employers do not restrict usage of publicly available information or the former employee’s knowledge and skill.

But an issue arises when the employer wishes to protect secret business strategies and techniques, which would likely satisfy the criteria of confidential information in Wright v Gasweld Pty Ltd but it can also become part of the employee’s know-how and skill. Whether the express restraint would be an illegal restraint of trade is outside the scope of this paper, but if it is enforceable then the former employee will be obligated to adhere to the duty of confidentiality and keep it a secret.

In cases where an enforceable express covenant is breached, the employer will be entitled to normal contractual remedies such as damages. Given that the duty of confidentiality exists in equity, equitable remedies such as injunctions, equitable compensation or account of profits are also available for the employer. For example, in Halliday & Nicolas v Corsiatto, the former employer was awarded an account of profits for 12 months after a former employee took the customer list to another competitor.

Equity recognises that the employee must compensate the employer for deriving benefit from that list, but the remedy will only last temporarily to negate that unjust advantage. Conclusion In conclusion, the duty of confidentiality mainly exists in equity, but can have contractual ramifications via express restraints. The most important factor when determining the existence of a duty of confidentiality is whether the relationship between the employee and employer is one of confidence.

The scope of this duty extends to post-employment, protecting the employer’s interests because information such as customer lists requires a lot of effort, commitment and time to develop, and it would be unjust if that benefit is taken away without compensation. But equity will act just enough to remove the unjust advantage gained by the former employee through exploitation of confidential information, reflected by remedies such as injunctions and account of profits lasting only temporarily.