If an organisation recruits an employee and is involved in that employee’s breach of legal duty to their former employer, the new employer may also be liable where it has “knowingly assisted” or been “knowingly concerned” in the breach.

A recent decision in the Federal Court of Australia (Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017] FCAFC 74) has highlighted the risk for employers when new recruits breach their ex-employer’s confidence.

The Full Federal Court confirmed the liability of a financial institution for actively participating in a breach of confidentiality by two new employees. As a result, the employer was ordered to pay more than $6 million corresponding to the profits flowing from the breach.

The employees used the confidential information of their then employer to create a business plan. The employees then moved to a competitor and implemented the business plan to the benefit of that competitor. The Court ruled the employees had breached their duties to their former employer of fidelity and confidence and other contractual duties, as well as the Corporations Act 2001 (Act).

The former employer sought an account of profits against the new employer.

The Court ruled the directors of the new employer knew the employees had taken and used their former employer’s confidential information, including historical financial information. The new employer was ordered to pay $6,233,944 by way of the capital profit arising from their competing business up until 30 June 2015.

Lessons for employers

Employees may be tempted to increase their ‘value’ to prospective employers by drawing on their current employer’s goodwill and commercial secrets. However, prospective employers should be mindful of and aware of the risks associated with confidential information.

Any information that seeks to give an employer an advantage over its competitors, which is not readily available in the public domain, should be treated with caution. If you are concerned about information provided by prospective or new employees, you should take steps to determine the origin of this information and, if necessary, seek to destroy or prevent further disclosure of any confidential information obtained in breach of obligations that may be owed to another business.

To protect against employees misusing your business’ confidential information, you should also ensure:

  • employment contracts contain enforceable post-employment restraints and detailed confidentiality obligations
  • employees deliver up all confidential information in their possession or control prior to the cessation of their employment
  • you seek legal advice if you are concerned than an employee or former employee has breached their confidentiality obligations.