Confidentiality: Watch out when hiring senior staff from a competitor!

Introduction

Hiring a senior employee from a competitor can often be an attractive proposition. However, if you are contemplating such a move, caution is needed. In a recent case, the Full Federal Court provided a timely reminder of the dangers of hiring senior staff from a competitor, where those employees have confidential information that they plan to share with you.

Employees are under a duty to keep their employer's confidential information confidential. Similarly, employers are under an obligation not to use confidential information that belongs to a competitor, if that information were provided to them unlawfully. The recent case of Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited provides a good example of the consequences of breaching this obligation.

Lifeplan and Foresters were both in the business of providing pre-paid funeral products. Two senior employees of Lifeplan shared confidential information with Foresters, including sales figures, market research and business plans. These two employees then resigned from Lifeplan and joined Foresters. The employees helped Foresters develop a new business plan, which led to Foresters successfully expanding its business, at the expense of Life plan.

Lifeplan successfully sued Foresters, and the Court ordered Foresters to disgorge its profits to Lifeplan, in the order of about $6 million.

In finding against Foresters, the Court said that:

• Foresters was complicit in the misconduct of the two employees.
• Foresters had made extensive use of Lifeplan's confidential information in developing its own plan to develop new business.
• Foresters would not have developed its business in the relevant field without the confidential information provided by the two employees.
• As a result, Foresters' profits from its new business could be directly attributed to its misuse of Lifeplan's confidential information.

The Court held that Foresters had provided 'knowing assistance' to the two employees, encouraging them to breach their fiduciary duties under the law. Accordingly, Foresters was also liable for the employees' breach of duty.

That Foresters was ordered to pay the profits it had made on the new business venture shows how serious the consequences can be for breaching confidentiality. If you are hiring senior employees from a competitor, make sure you do not accept confidential information from them about their former employer, or make use of any confidential information to gain a competitive advantage. The costs of doing so could be very significant.

If you require advice or assistance, please do not hesitate to give us a call on 1300 205 506 or send an email to sp@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

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