Technology has enabled employees to take confidential information on their departure from the business, including client lists. All an employee needs to do is copy information to an external hard-drive or email information to their personal account. Once the information is in their possession, they will be able to distribute or use it with ease. This article will outline what steps employers can take to enforce their rights when an employee steals confidential information.
Showpo: Data Theft
Australian fashion label, Showpo, recently found itself in a situation involving an employee’s alleged theft of confidential information. According to Showpo, a former graphic designer stole their customer database and shared it with her new employer, Black Swallow.
Black Swallow is also an online fashion retailer and targets a similar demographic to Showpo. Showpo claims that since receiving their customer list (containing the details of over 306,000 customers), Black Swallow has adopted remarkably similar branding to Showpo, in what seems like an attempt to market itself as an affiliate of the label. If the allegations are true (Black Swallow denies ever having received Showpo’s customer data, and litigation remains ongoing), Showpo may have lost a meaningful number of sales and accrued significant reputational damage.
What Can Employers Do?
For employers who find themselves in a situation like Showpo, there are two possible types of remedy. Employers can terminate the employment contract between themselves and their employee, or they can pursue legal action against their former employee through the courts. An employer could seek injunctive relief, damages to compensate for their losses or both.
Terminate the Employee
If the employee is still working for you when the theft of confidential information occurs, then you may be entitled to terminate their employment contract as a form of remedy.
Pursue Legal Action Against the Employee
If the breach is serious and your business has suffered significant detriment as a result, you should consider legal action against the employee. This avenue may prevent an employee from further disseminating the information. The court may do one or more of the following:
- grant an injunction, which is a court order that requires an individual to do (or refrain from doing) a specific action;
- order the employee to pay damages for breach of contract;
- order the employee recompense the employer for any legal costs incurred as a result.
The Court explored these remedies in SAI Global Property Division Pty Ltd v Johnstone  FCA 1333. A senior business development manager, Mr Johnstone, copied confidential information onto a USB before his employer terminated his employment. Mr Johnstone made use of that information in his new position working for a competitor.
In SAI Global, the Court made orders for injunctive relief. The injunction the Court granted prevented Johnstone from using any of SAI Global’s confidential information unless he was legally required to do so or SAI Global had granted him written permission. The Court also ordered Mr Johnstone deliver the USB, and any other devices he possessed which contained SAI Global’s confidential information.
The Court decided an injunction was appropriate given Mr Johnstone’s obvious disregard for his obligations of confidentiality. Mr Johnstone purposefully copied the documents containing confidential information, with the full knowledge that SAI would stridently oppose him doing so. He made use of these documents at a new position, which he started while his employment contract at SAI was still ongoing.
Johnstone’s behaviour indicated, in the Court’s view, that there was a risk of him further using or disseminating SAI’s confidential information unless restrained from doing so by an injunction. A court is less likely to grant injunctive relief in cases where an employee has unknowingly or unwittingly taken or shared confidential information. In this case, there is less risk that they will continue to disseminate the information.
Damages for Breach of Contract
SAI Global was entitled to $4,320 worth of damages from Johnstone as a result of his breach of contract. This breach arose not only because he stole the confidential information, but because he took up a position at a competitor when his employment contract specifically prohibited him from doing so while he was still being paid by SAI Global.
An employer may be entitled to damages if they can demonstrate that they suffered a loss as a result of the employee’s behaviour. In the Showpo case, if they can prove that their graphic designer stole customer data, they will likely have to pay damages for the loss of sales revenue the graphic designer’s actions caused.
Damages for Copyright Infringement
The dissemination of confidential information often constitutes copyright infringement, particularly in cases where a comprehensive confidentiality clause outlines this possibility. In SAI Global, the Court found Johnstone had infringed his employer’s copyright and ordered he pay nominal damages (i.e. small sum). Given the flagrancy of his actions and the need to deter others from engaging in similar behaviour, the Court exercised its discretion to award an additional $5,000 damages under s115(4) of the Copyright Act 1968 (Cth).
Orders for Costs
An employer may be able to recover all their costs from their employee if they succeed in their claim. This is not, however, always the case. Even if an employer succeeds in their claim, the court may decide that the employer has incurred costs that are “disproportionate” to the importance and complexity of the matter. If this is the case, an employer may only recover partial costs.
In SAI Global, the Court ordered Mr Johnstone pay slightly more than half of the plaintiff’s costs. This was because Mr Johnstone stopped having access to SAI Global’s confidential information at an early point in the proceedings. In effect, this prevented Mr Johnstone from using the information to interfere with SAI Global’s business operations. In the Court’s view, it was “disproportionate” for SAI to pursue the matter in the manner that it did, incurring approximately $270,000 worth of expenses.
There are two types of remedy an employer can seek when employees steal confidential information such as client lists.
- If the employer has recovered the information and the employee is a current employee, then terminating their employment contract may suffice.
- If the employee has already left the company or if significant damage occurred as a result of the employee’s theft, an employer can pursue legal action against the employee.
Courts can offer a remedy by way of an injunction, damages and orders for costs, to cover the loss or damage the theft caused.