Preventing ex-employees from using your client list

This article discusses the decision of the Federal Court of Australia in Prime Creative Media Pty Ltd v Vranjkovic [2009] FCA 1030 to grant an interlocutory injunction against a former employee (Vranjkovic), restraining her from using confidential client contact information obtained during the course of her employment.  While the parties agreed to settle the matter prior to the final hearing, this interlocutory proceeding provides an example of how a business should act quickly to restrain a former employee from using confidential information following termination of their employment.

Background facts

The applicant, Prime Creative Media Pty Ltd ACN 127 239 212 (Prime) is a publisher and provider of marketing services in the commercial road transport industry.  The first respondent, Vranjkovic, was employed by Prime between January 2004 and September 2008.  Following her resignation from Prime, Vranjkovic undertook employment in several positions before entering the employ of the second respondent, Motoring Matters Pty Ltd ACN 003 325 228 (Motoring Matters), another publisher in the commercial road transport industry.

In the course of her employment with Prime, Vranjkovic compiled a ‘personal database’ (Personal Database) of “contacts” she had made while carrying out her duties. The Personal Database was compiled from business cards and other information acquired during Vranjkovic’s employment.  Prime also had its own ’master database’ (Master Database) of more than a thousand contacts, including current, former and prospective clients.  The electronic form of the Master Database was admitted into evidence through an affidavit sworn by the Managing Director of Prime.

Following Vranjkovic’s employment with Prime, Prime was contacted by several former clients (who were listed in the Master Database) who informed Prime that Vranjkovic had contacted them via email stating that she wished to keep in touch and was now undertaking consulting and public relations work on her own.  This lead Prime to believe that Vranjkovic had retained a copy of the Master Database and was using it for her own purposes.  Prime sent Vranjkovic a letter (Letter of Demand) setting out Prime’s concerns and requesting that all contact information retained by Vranjkovic in relation to her employment at Prime be returned immediately. Vranjkovic did not directly respond to the Letter of Demand.

Sometime later, Vranjkovic commenced employment (as either an employee or contractor, this was not made clear in the judgment) with Motoring Matters.  At the hearing, Prime argued that Vranjkovic had provided the Master Database to Motoring Matters, who was using the information to solicit clients/customers from Prime.

Prime applied for an injunction to restrain Vranjkovic and Motoring Matters from using the confidential information contained in the Master Databases for any purpose and to restrain Vranjkovic and Motoring Matters from making any copies of the Master Database.

Reasons for decision

Prime’s grounds for seeking relief were based on common law actions for breach of confidence and breach of fiduciary duties owed by Vranjkovic, together with statutory breaches of the Corporations Act 2001 (Cth) (Corporations Act) and the Copyright Act 1968 (Cth) (Copyright Act).  Prime contended that Vranjkovic’s use of the Master Database to the advantage of Motoring Matters was contrary to Prime’s interests, and therefore a breach of s 182 of the Corporations Act, and that Prime retained the copyright in the Master Database pursuant to s 35(6) of the Copyright Act.

When delivering his judgment, Ryan J focused on the question of whether or not the information retained by Vranjkovic was ‘confidential information’.  In considering this issue, His Honour drew upon the established authorities of Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VR 37 (Ansell) and N P Generations v Fenely [2001] SASC 185 (Fenely).

In considering the earlier authority of Ansell, Ryan J noted the distinction between information obtained during an employee’s employment that is confidential, and that which is not.  In Ansell, the court made the distinction between information and knowledge that an employee acquires during their employment (such as a list of customers – which is confidential) and information that forms part of the employee’s ‘stock of general knowledge, skill and experience’ (which is not confidential).

Justice Ryan further considered the comments made by the Court in Fenely, that if a departing employee takes with them copies of a list of customers which were initially prepared for legitimate purposes, the departing employee has an obligation to return the copies to their former employer and that it would follow that upon ceasing employment, the employee should no longer use the list of customers. Importantly, Ryan J noted that it was not necessary for Prime to prove actual or apprehended detriment to its business as a result of the misused information in order to be granted an injunction.

Outcome

Justice Ryan found that the information Vranjkovic had appropriated from Prime was confidential and Vranjkovic and Motoring Matters should be restrained for using the information to their benefit.  In light of this conclusion, Ryan J made orders that Vranjkovic and Motoring Matters were restrained (until the final hearing where the matter would be determined on a final basis) from using (for any purpose) the information contained on the Master Database.

Prior to the final hearing that parties agreed to settle the matter.

While the matter ultimately settled prior to final hearing (with Vranjkovic agreeing not to use the information contained on either the Personal Database or the Master Database), Ryan J did note (at [17]) that an appropriate form of final relief may be an order requiring the delivery up and deletion from any hard-drive or computer possessed by either Vranjkovic or Motoring Matters of data downloaded or derived from the Master Database.

Takeaways

For a business concerned that a former employee has taken confidential information, important takeaways include:

• Where a business believes that a former employee has taken or is using the confidential information following their employment, the business must act quickly to restrain the former employee from acting with the information (pending a final hearing on the matter).
• Before seeking an interlocutory injunction, the business must gather the evidence necessary to establish that:
  • the information of the business is confidential; and
  • that the former employee has the information in their possession or control.
• If the business does not have evidence of the former employee’s possession of the confidential information, it will need to prove to the Court that there are reasonable grounds to believe evidence is in the control of the former employee and may request the Court to order the former employee to provide all necessary documents for examination (see SAI Global Property Division Pty Ltd v Johnstone [2016] FCA 1333).

Should you believe that your business has suffered from a confidential information breach, it is important to move to quickly to gather the necessary evidence and contact a legal professional to advise you on the best method of containing the breach.

Links and further references

Cases

Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967] VicRp 7
N P Generations v Fenely [2001] SASC 185
Prime Creative Media Pty Ltd v Vranjkovic [2009] FCA 1030
SAI Global Property Division  Pty Ltd v  Johnstone  [2016] FCA 1333 (14 November 2016)

Legislation

Corporations Act 2001 (Cth)
Copyright Act 1968 (Cth)

Further information about confidential information

If you need assistance with obtaining an interim or permanent injunction to protect your business’s confidential information, please telephone me for an obligation free and confidential discussion.

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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