Employer pays the price of employee’s misuse of competitor’s confidential information

A recent out of court settlement of a high profile restraint of trade case in the South Australian real estate agency industry highlights again the significant risks that businesses face if they hire an employee who has taken and misused confidential information of their former employer. 

Toop&Toop Real Estate (the Company), a well-known independent real estate agency, reportedly received a payment of $750,000 from Harris Real Estate after it alleged in court that its former employee Arabella Hooper had misused the company’s confidential client data base, causing it to suffer a significant loss of revenue from existing client leads.

What was alleged by the Company?

The Company alleged that Ms Hooper had taken 700 pieces of confidential client data before her employment came to an end. While still employed at the Company, Ms Hooper is said to have changed records by marking ‘hot’ and ‘warm’ leads as ‘cold’ to avert agents checking in with clients, which resulted in 39 clients being taken to Ms Hooper’s new employer, Harris Real Estate.

Evidence was led by the Company to support its claim that Ms Hooper was planning on leaving the Company well before she resigned, and bringing clients with her.

The outcome

The Company joined Harris Real Estate to the proceedings against Ms Hooper as a co-defendant and the parties settled on a record sum of $750,000. The confidential client data taken by Ms Hooper was also returned to the Company.

Sound familiar?

The case resonates with a number of recent Supreme Court of NSW decisions where the employer enforced their rights against a former employee who had resigned to join a competitor.

In the decision of Dargan Financial Pty Ltd ATF the Dargan Financial Discretionary Trust (trading under “Home Loan Experts”) v Nassif Issac [2017] NSWSC 1077, the Supreme Court of New South Wales found that a contractor breached his post-engagement confidentiality obligations by taking and using a client list from his former firm, in circumstances where the client names were accessible on the former firm’s Facebook page. 

The Court found that the client list contained not only the identity and contact details of the client, but also more intimate information concerning the clients’ assets and liabilities and their ability to service loans - the latter of which was of the greatest commercial value to Home Loan Experts. The Court found that this information ‘plainly has the necessary quality of confidence and [was] imparted in circumstances importing an obligation of confidence given its commercial value and the degree of detail and intimacy concerning the financial profile of its clients’. The Court held on this basis that Mr Isaacs had breached his contractual and equitable duties of confidence by retaining and using Home Loan Experts’ client list.

Our article on this case can be read here.

In Grace Worldwide (Australia) Pty Limited (ACN 070 345 845) v Steve Alves [2017] NSWSC 1296, Grace Worldwide sought to enforce restraints prohibiting employee senior executive, Steve Alves from:

• soliciting other employees to terminate their employment
• soliciting business from the company
• working as the CEO for a direct competitor for the restraint period.

The Court recognised the significant knowledge of confidential information held by Mr Alves and that his new employer was a principal competitor of Grace Worldwide. In light of this, and in recognising the importance of protecting the interests of the Company, the Court enforced a six month post-employment non-compete and non-solicit restraint of trade on Mr Alves.

Our article on this case can be read here.

What is the significance of these cases?

The cases reinforce the willingness of courts to enforce protection by a business of its legitimate business interests in confidential information and customer connections. 

In particular, a business needs to ensure it:

• deals with confidential information in a way that ensures that it may be characterised as confidential. In particular, consider how confidential information is shared with employees or contractors, and whether that information is clearly imparted to them in confidence
• controls how confidential information is shared within the business – for example, restricting access to confidential information to key staff, and ensuring information is not broadly published within your business or outside your business
• protects confidential information which is disclosed during the employment relationship. In particular, ensure that your employment contracts and contractor arrangements specify information which is confidential to your business and how workers are to deal with any confidential information they have access to, both during and after employment. 

Author: Michael Selinger & Adrian Zagami

Contacts

Sydney
Stephen Trew, Partner
T: +61 2 8083 0439
E: stephen.trew@holdingredlich.com

Michael Selinger, Partner
T: +61 2 8083 0430
E: michael.selinger@holdingredlich.com

Melbourne
Charles Power, Partner
T: +61 3 9321 9942
E: charles.power@holdingredlich.com

Benjamin Marshall, Partner
T: +61 3 9321 9864
E: ben.marshall@holdingredlich.com

Brisbane
Rachel Drew, Partner
T: +61 7 3135 0617
E: rachel.drew@holdingredlich.com

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources.

Published by:

Michael Selinger

Adrian Zagami

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