Often, post-employment obligations and restraints will be stipulated in an employment agreement. However, businesses may also rely on a contractor’s equitable obligations to avoid the misuse of confidential information and client relationships. This equitable obligation will apply even if there is no employment contract.
Breach of Confidence
Breach of confidence is an equitable course of action that seeks to prevent or remedy the non-consensual exposure of secret and confidential matters a person has been privy to[1]. If a contractor has been privy to information classified as a trade secret and confidential, such as a client list or pricing structure, they may be required to keep this information confidential. [2] Businesses would have to show that the information was sufficiently specific and have the quality of confidence, i.e., the information is not in the public domain and commercially valuable to the business. Further, the contractor must have acquired the information in circumstances that require confidentiality, including being told that information is strictly confidential and only provided to allow completion of the required services.
If there has been a dissemination of confidential information, then the business may be entitled to financial compensation in the form of receiving any profits. The business may also be able to get compensation from any third parties, for instance, the new employer, who knowingly received or assisted in the misuse or sharing of such information[3]. Outside of a court order, a business may choose to send a cease-and-desist letter to their former contractor seeking an undertaking that this information remains confidential.
Restraint of Trade Clauses
A restraint of trade clauses is often included in employment agreements to prevent a contractor from negatively impacting a business post-engagement. Given the nature of independent contractors and their short-term engagement for services, post restraint clauses must be reasonable rather than a blanket restriction on the use of confidential information. Such clauses may include restrictions on intellectual property, solicitation of clients and the use of confidential information, amongst others. Whether or not a restraint of trade clause is reasonable depends on the nature of the business, the wording of the term and other considerations. For further advice on the restraint of trade terms, you should seek legal advice.
Conclusion
Businesses should ensure they protect their business interests through reasonable post-employment restraint clauses that define the relevant confidential information. In the case that a restraint of trade clause is insufficient to protect a principal’s confidential information, they may be able to rely on equity’s breach of confidence to protect their business.
If you are an independent contractor, you should seek legal advice about any post-employment obligations in your employment contract.
[1] Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 156 CLR 414, 437-8.
[2] Ramsay Health Care Ltd v Information Commissioner & Anor [2019] QCATA 66 [57]; Coco v A N Clark (Engineers) Ltd [1969] RPC 41, 49.
[3] Breen v Williams (1996) 186 CLR 71, 129.