Cost Of Dealing With Employee Information: A Legal Perspective

Background

Question:

Discuss About The Cost Of Dealing With Employee Information?

In the past, I had worked in the finance department of a hotel, where I came across a dispute related to the confidentiality breach by the employee who was set to leave the company. The employee also had been working in the finance department, where he had the access to employee records and also of the salary packages of each of the clients. He decided to leave the hotel and therefore submitted his resignation. Within two weeks of leaving the hotel, he joined a rival hotel. It later came to the knowledge of the hotel in which this employee was earlier working that the employee had downloaded the details of the employees and also of their salary packages. Further, this employee had used this highly confidential information in the competitor hotel in order to get the talent from this hotel to the competitor hotel.

This resulted in a dispute being raised as the hotel asked the ex-employee to return all of the confidential files, which were in his possession, along with the files which he had downloaded on the external storage devices. After a few days, this request of the hotel was fulfilled by the ex-employee. Once this happened, the hotel initiated action against the ex-employee and claimed:

• $5,000, which was the salary paid to the employee following his resignation when he had already started his employment with new employer;
• They also sought an injunction order to restrain the employee from using the confidential information;
• Nominal damages; and

The plaintiff in this case was the hotel where the employee worked earlier. They based their case on the contract law entirely.

An employer-employee relation is governed by the employment contract, which covers the terms and conditions of the employment of the employee under the employer. This document gives both the employer and employees, certain duties and responsibilities, which have to be fulfilled. Where this is not done, the other party can claim damages for the breach of contract. This is because an employment contract is a promise between the employer and the employee, where the employee promises to perform their job, and the employer in return promises to pay the salary to the employee. There are majorly two types of terms in any contract, including the employment contract. These are the express terms, and the implied terms. The express terms are such terms in the contract which are explicitly covered in the employment contract. The implied terms are such terms which are assumed to be present in any contract[1].

In the employment contract which was drawn between the employee and the hotel, it was an implied term of the employment that the employee would, during his employment and even after it, would not disclose any confidential information of the employer, along with their trade secrets, to the third parties. Also, it is implied that the employee would not make use of such confidential information of the employer for their purpose. Apart from this, there is the implied term of good faith and reasonableness in the contracts. This was established through the case of Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWCA 187[2]. The New South Wales Court of Appeal presided over this matter and found this implied obligation to be present in the contract drawn between the two parties.

Employment Contract and Its Importance

The most important case which needs to be referred here, owing to the similarity between the present case and the precedent is the case of SAI Global Property Division Pty Ltd v Johnstone [2016] FCA 1333[3]. This case had a similar scenario taking place; however, instead of the data of the employees being taken by the ex-employee, this case had the information of the clients being taken by the ex-employee[4]. This led to SAI initiating a case against Johnstone for the contravention of the employment contract, the contravention of fiduciary duties, the contravention of copyright, the contravention of duties covered under Corporations Act, 2001 (Cth)[5] being applicable on former employees, and the contravention of duty of confidence. Johnstone admitted to all these claims which led to SAI being successful in their claims, except for one of the claims. This led to the court giving a declaration that there had been a contravention of copyright by Johnstone. Further they also held that the duties covered under the Corporations Act and the fiduciary duties had also been contravened. The employment contract was also held to have been contravened by Johnstone[6].

This led to the court passing an order for Johnstone to delete all the confidential information he had and to deliver all the copies of such files to SAI. An order was also passed to permanently restrain Johnstone from using the confidential information of SAI or from disclosing the same. Owing to the breach of the employment contract, the company was awarded damages of $4,230, which had been the salary paid to the employee for his notice period, even when he had been working for the competitor. $1 was awarded as the nominal damages and $5,000 was awarded as the additional damages for copyright infringement, particularly based on section 114 of Copyright Act, 1968[7] owing to the flagrant infringement. The only matter which was discussed in detail was that the issue of costs. After considering the arguments and counter arguments, even the costs were awarded to SAI[8].

The ex employee cannot deny that the information  had been taken from the hotel as the laptop of ex employee had been forensically examined, due to the hotel getting suspicious on the conduct of their employee[9]. This is how the hotel discovered that their ex employee had copied some confidential files merely three days before he had resigned from his job. This information included the confidential customer list of the employer, i.e., of the hotel.

The defendant of this case was the employee who left the hotel, to work for a competitor hotel.

The plaintiff claimed that the employee owed an implied duty of confidentiality during the course of their employment with the hotel. However, this is not true. For this, reference needs to be made to the case of Commonwealth Bank of Australia v Barker [2014] HCA 32[10]. In this case, it was decided by the High Court that there is no term of confidence and trust which is implied in Australia by the law, under the employment contracts. The implied term is only of good faith in all of the contracts, which includes the employment contracts. So, the implied term claimed upon by the hotel regarding the employee owing the hotel confidentiality is wrong.

Implied Terms in Employment Contracts

The next argument raised by the defendant was that there was no evidence to show that the data which he had taken from the hotel had been given to the competitor hotel. Further, they claimed that this data was anyways not of confidential nature, as the employee details are available on public platforms and the job websites. The information was never misused and something which is on portals accessible by general public cannot be deemed as confidential information. The good faith had been maintained by the employee as they gave back the information which they had taken of their previous employer and this information was never given to a third party. The employee also claimed that the nominal damages asked upon by the hotel were base-less as they were not supported by any law.

As an employee, the employees have certain duties in context of the manner in which the confidential information is made use of. Such duties could continue even after the employment is ended with the employer. Where this confidential information is not used properly, particularly with the consent of the employer, the employee would have to pay the compensation for the loss which the employer sustained owing to the misuse of such information, or the wrongful use of such information. This also allows the employer to take an injunction order against the employee, so as to stop the employee from contravening their duty[11].

The views presented by the plaintiff and defendant in terms of their arguments raised for the dispute highlights the possibility of the outcome going in favour of the hotel, i.e., the plaintiff. This is predominantly due to the ruling given in the case of SAI Global Property Division Pty Ltd v Johnstone. Both the cases had the employee who used the confidential information of the company and took this information in an unethical manner. Even though confidentiality was not something which was deemed as an implied term in the nation under the employment contracts, there was the term of good faith, which required the employee to not take the confidential information of the company, let along misuse the same.

Based on this, the suggested outcome for this dispute is the decision being given in the favour of the hotel for which the ex-employee worked. And the damages sought out by the hotel would be awarded to the hotel.

The issue which took place in the finance department of the hotel highlights key issues. These issues require immediate action to be undertaken, particularly in terms of the strategies being drafted for mitigating such risks and such instances from taking place. The main problem here was that an employee of the hotel was able to download the confidential information of the hotel and this was not caught till the employer got suspicious. This highlights the lack of checks on the employees to use and store the confidential information. Further, as this instance took place in the finance department of the hotel, the gravity of the situation is raised.

• Increasing the security of confidential information: The hotel needs to adopt a security measure where the information used in the finance department, or even in the other important departments of the hotel are not misused. This involves setting a protocol where only a handful of individuals are given access to this information, and the manner in which they make use of such information is tracked down. This has to be accompanied by measures where the downloading of such information is prohibited.
• Limiting access: The access to information like the finances of the hotel, the customer base, and the employees has to be restricted.
• Limiting gadget: Any kind of gadgets should be restricted, in terms of mobiles, USBs, or any such gadget should be restricted from being taken to such places where the confidential data is kept. Where the employees have to use any such gadgets for performing their duties, these should be provided by the employer, which are carefully monitored in terms of being tampered with.

Conclusion

Thus, from the discussion which has been undertaken in the previous segment, it can be concluded that the dispute which took place between the hotel and its ex-employee was serious in nature. This was due to the fact that there was a misuse of the confidential information of the hotel by the ex-employee who took the information of the hotel without any permission. This resulted in the implied terms of the employment contract being breached, in terms of good faith not being applied by the employee. Here, the employee breached the trust of the hotel and breached the confidentiality which they had to uphold. This is the reason why the plaintiff would be successful in claiming the damages and even the costs, but the same not is true for the nominal damages claimed. This is due to the fact that unlike the precedent, this case had no copyright infringement. This incident is an important learning for the hotel as based on this, the hotel needs to draw up the strategies suggested above, in order to mitigate such instances

Reference List

Burger King Corp v Hungry Jacks Pty Ltd [2001] NSWCA 187

Commonwealth Bank of Australia v Barker [2014] HCA 32

Cruz E and B Nickerson, ‘Case Note: SAI Global Property Division Pty Ltd v Johnstone [2016] FCA 1333’, https://www.corneyandlind.com.au/resource-centre/employment/case-note-employment-breach-contract-confidentiality/, 2016, (accessed 03 March 2018)

Freedland M, ‎A Bogg, ‎and D Cabrelli, The Contract of Employment, Oxford, Oxford University Press, 2016.

Gascoyne C and Z Giffard, ‘The cost of dealing with employee information theft’, https://www.claytonutz.com/knowledge/2016/december/the-cost-of-dealing-with-employee-information-theft  2016, (accessed 03 March 2018)

Glockner M, ‘Breach Of Confidentiality – An Employee Has Been Ordered To Pay His Former Employer $205,647.00’, https://www.hrlawyers.com.au/breach-confidentiality-employee-ordered-pay-former-employer-205647-00/, 2016, (accessed 03 March 2018).

Ni C, ‘Thinking of taking your employer's files on your way out? Think again.’, https://www.linkedin.com/pulse/thinking-taking-your-employers-files-way-out-think-again-chao-ni, 2016, (accessed 03 March 2018)

Professionals Australia, ‘Your rights and responsibilities around confidential information’, https://www.professionalsaustralia.org.au/blog/rights-responsibilities-around-confidential-information/, 2015, (accessed 03 March 2018)