Copyright and confidentiality - employees

Duty of fidelity

A legal doctrine, known as the duty of fidelity, covers a range of obligations owed by an employee to an employer. The obligation of fidelity is an implied term in the employment contract.

Examples of these duties include:

• the duty to act honestly and faithfully in the service of the employer;
• a duty not to earn secret profits;
• an acknowledgment that an employer has proprietary rights over certain creations made by the employee during the course of employment (eg copyright); and
• the duty not to disclose confidential information.

Ensuring confidentiality may be extremely important from a client’s point of view and most firms would want to be able to guarantee confidentiality to their clients and prospective clients.

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What is confidential information?

Unlike copyright, there is no set body of law that protects confidential information. Copyright is a specific intellectual property right that gives ownership over specific types of material (eg, architectural plans as artistic works), regardless of whether it is secret or public knowledge. Copyright does not protect ideas, concepts, facts, or information. However, it is possible to restrict the use of ideas, concepts, facts, and information by claiming it as confidential information.

Whether information is confidential is decided on a case-by-case basis, and there is no legislated list as to what is or is not confidential information. Rather, in order for information to be considered 'confidential', it must:

• be specifically identified – a general or global claim to confidentiality will not suffice;
• have the necessary quality of confidence – if it is already common or public knowledge, it can’t be confidential; and
• be disclosed in circumstances that create an obligation of confidence – in other words, the person receiving the information knows or should have known to keep it secret.

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Duty of confidence in employment

The obligation not to disclose confidential information obtained in the course of employment is implied by common law and thus exists if there is no express agreement between employer and employee. However, many employment agreements will contain a specific clause setting out confidentiality. The duty of confidentiality can continue to exist after an employee has left employment.

Where confidentiality is breached, the employer is entitled to the remedies of an injunction, or damages or both if an ex-employee uses confidential information, gained during the course of employment, against ex-employer’s interests.

An employee may be in breach of their duty of fidelity to the employer if employed on a part-time or casual basis by a competitor of the employer, even if there is no disclosure of confidential information. Similarly, a breach may occur if an employee accepts work from the employer’s client in their own capacity. The employee would be regarded as looking after their own interests to the detriment of the employer.

In the absence of an express agreement between the parties an ex-employee is entitled to set up a business in competition with their former employer and to make use of the knowledge and skill acquired during the course of that employment.

However it is a breach of the duty of fidelity for an employee to seek out the clients of their employer before leaving that position in an attempt to induce them to become clients of a new business. There are no such restrictions on canvassing after leaving the employer’s service.

It should be noted that the Australian Institute of Architects Code of Professional Conduct states, in part:

'Members have a responsibility to other members and the Institute of maintaining standards and integrity within the profession. Members shall not attempt to supplant another architect, employed or consulting, who has been appointed with a firm commitment for a particular project.' (Rule 3.5)

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Restrictive covenants in employment contracts and restraint of trade

An employment contract may legitimately impose restrictions on an employee to prevent that employee from engaging in any other employment for the duration of the contract. This situation arises where there is likely to be a conflict of interest. The contracts must be reasonable and would be held to be invalid if they imposed severe restrictions on personal freedom of action.

Information can be protected by the use of a restrictive covenant in an employment contract. Such a covenant would limit the rights of an employee to make use of certain information during and after employment with a particular employer.

Rather than rely on common law rights it is advisable to attempt to gain a degree of certainty by drawing up a clause which limits the rights of employees to divulge or misuse confidential company information. However, a clause that is too restrictive will be invalid on the grounds that it is an unreasonable restriction on the rights of an individual’s use of professional skill and knowledge.

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Employment agreements - sample clauses

It is strongly recommended that employment agreements include provisions that address the employee's duties in relation to confidentiality and copyright. The following are examples of clauses that may be used for this purpose:

Confidential information

1. For the purposes of this agreement, 'confidential information' means all non-public, business-related material that is disclosed or made available to the employee, whether orally, in writing, or by observation, the revelation of which may cause financial damage or embarrassment to the employer. 'confidential information' includes, but is not limited to, the identity of the employer’s clients, technical and financial details of the employer’s building projects, the employer’s current and proposed business contracts, the employer’s finances, the employer’s corporate and business arrangements, and personal and financial details of the employer’s principals and other employees.

2. During and after the  employment period, and regardless of the reasons that such employment ends, the employee agrees:

   (i) not to reveal any confidential information contrary to the employer's interests;

   (ii) only use confidential information to further the employer's interests; and

   (iii) take all reasonable action that the employer deems necessary to prevent unauthorised use or disclosure of confidential information.

3. This agreement does not apply to:

   (i) information which becomes well known or easily ascertainable to the public or the employer's competitors, other than by the deliberate or inadvertent disclosure of the employee; and

   (ii) disclosures compelled by judicial, administrative, or law enforcement proceedings.

Competition

1. During the term of this agreement the employee shall not, either directly or indirectly, enter into the same or any similar business as that carried on by the employer, either as a principal, employee, shareholder, officer or director.

Copyright

1. The copyright in all works created by the employee pursuant to this agreement vests in the employer. The employee shall not reproduce the whole or a substantial part of the employer’s works in any way without the employer’s prior permission.

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Conclusion

It is advisable to formalise the employer-employee relationship by the use of a contract of employment (refer Employment agreements). Where this is done, clauses relating to confidentiality, competition and copyright should be included. They are an important protection for the employer and serve to remind the honest employee of their obligations to the employer.

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The Australian Copyright Council kindly contributed to the review of this note to ensure currency with the Copyright Amendment (Disability Access and Other Measures) Act 2017 and its related Regulations which came into effect in December 2017. For more information, refer Modernising Australia’s copyright regulations.