Why confidential information should remain confidential | KPMG | AU

Six million reasons why confidential information should remain confidential

Why confidential information should remain confidential

Timothy Zahara discusses a recent court case that gives six million reasons for employers to respect confidential information.

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A recent case in the Federal Court of Australia resulted in a company being ordered to hand over $6,233,944 to a former employer of some of its employees. The order was made after the company, the Ancient Order of Foresters in Victoria Friendly Society (Foresters), was found to have knowingly assisted two of its employees in breaching their obligations to their former employer, another friendly society known as the Lifeplan Australia Friendly Society (Lifeplan).

Whilst still employed by Lifeplan, the employees had developed a business concept using Lifeplan’s confidential information setting out how they could significantly grow a Foresters business segment that was in direct competition with Lifeplan. The Court found that it would have been obvious to any person reading the document that it included Lifeplan’s confidential information. The business concept plan was presented to Foresters’ board and was an important factor in Foresters’ decision to ultimately hire the employees and implement their business plan.

Additionally, whilst still employed by Lifeplan, the employees kept Foresters updated as to discussions they were having with their clients to discuss the proposed move to Foresters, and also engaged in detailed discussions as to structural changes that Foresters could make to facilitate the new business concept.

Even though the employees did not have any restraints of trade or non-solicitation obligations in their employment agreements, they still had obligations not to misuse Lifeplan’s confidential information and to be loyal to Lifeplan during the course of their employment. Foresters was found to have knowingly assisted the employees to breach these obligations by acting in concert with the employees to take steps to ensure that the business concept would be operational as soon as possible.

The Court found that Foresters would not have expanded its business were it not for the breaches of the employees’ duties to Lifeplan. Accordingly, the Court ordered that Foresters was to provide an ‘account of profits’ to Lifeplan that was equivalent to the capital profits of the expanded business segment over 5 years, which amounted to $6,233,944.

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