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Employer blocked from compelling former employees to hand over documents

What to be aware of if you suspect former employees have obligations regarding your business’ confidential information

The Federal Court of Australia recently rejected a company’s application to compel three of its former employees to hand over documents which it said would help the company decide whether to sue them.  The company, Coffey International Pty Ltd, a provider of laboratory testing services to the resources industry, suspected that some of its former employees had taken its confidential information and given it to Qualtest Laboratory (NSW) Pty Ltd, their new employer.

The Federal Court can order a person to hand over documents to enable a person or company to decide whether it has a claim against that person. 

Pursuant to Rule 7.23 of the Federal Court’s rules, the Court can only make such an order where you:

  • reasonably believe that you may have a claim;
  • have made reasonable enquiries, but do not have sufficient information to decide whether to issue proceedings;
  • reasonably believe that the other person has, is likely to have or have had, those documents, and looking at those documents would help you decide whether to issue proceedings.

In applying this rule, some relevant principles that the Court considers were outlined in St George Bank Ltd v Rabo Australia [2004] FCA 1360, including:

  • the rule is to be given the ‘fullest scope’ possible;
  • the rule cannot be used to ‘remedy deficiencies’ in satisfying the rule itself;
  • belief ‘requires more than mere assertion’ and ‘more than suspicion or conjecture’;
  • lacking ‘sufficient information’ contemplates that you are lacking a piece(s) of information ‘reasonably necessary to decide whether to commence proceedings’.

Possible actions Coffey wanted to take against the former employees were for breaches of employment contract, fiduciary duties, confidence and sections 182 and 183 of the Corporations Act 2001 (Cth).

The employees’ contracts stated that confidential information is the property of the Company and includes:

  • documentation or information received or developed in the performance of duties;
  • marketing information;
  • customer lists;
  • financial information; and
  • business plans.

The contracts also contained post-employment restrictions including prohibitions against ‘inducing employees to terminate their employment’ with Coffey or ‘soliciting clients’ of Coffey or its related bodies corporate.

Sections 182 and 183 of the Corporations Act 2001 (Cth) prohibit the improper use of a person’s position or information (respectively), by directors, officers and employees, to gain an advantage or cause detriment to the corporation. 

To establish a breach of confidence, Coffey had to prove that:

  • the information was confidential (and not, for example, public knowledge);
  • the information was received in circumstances importing an obligation of confidence; and
  • actual or threatened misuse of the information without consent.

Coffey engaged some forensic IT specialists who determined that the former employees had accessed documents on the hard drives in the months before leaving Coffey and had sent emails to their personal email addresses attaching documents that Coffey says were confidential. 

One former employee explained that they had sent emails to their personal email accounts to read at leisure or work from home on their personal computers because accessing emails on Coffey’s laptops was slow.  One argued that they had inserted a USB into a Coffey computer for a business purpose (that is, to review an agreement).

At no stage did Coffey ask the former employees about their possession or use of confidential information, nor about Coffey’s suspicions that they had breached their contracts or approached other employees/clients.  Coffey had also failed to ask questions of existing Coffey employees or clients, or Qualtest.

Moreover, the forensic examination was limited in that it only showed whether documents were accessed, not whether they were copied.

Justice Farrell said that in circumstances where the employees had a legitimate reason to access the information, it was not enough to show that they had access and were in a position to compete with Coffey.  More was needed to show a “reasonable belief” that they had or would misuse Coffey’s confidential information or pass it onto their new employer.

The case highlights the processes that companies should undergo if they believe that former employees have breached their contracts and/or obligations regarding confidentiality.  

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