Cessation of employment may occur due to many reasons, but termination of employment does not imply that the employment contract entered into, is rendered meaningless or has come to an end.

You should always carefully go through the termination clauses in your employment contract before signing since these clauses may have a long standing impact on your future decision making ability and career decisions.

Effect of Confidentiality Clause and Non-Competition Clauses

Confidentiality clauses restrict an employee from discussing or disclosing any information or knowledge like trade secrets or client information, which the employee may become aware of during the course of employment. The restriction is applicable both during the period of employment and even after cessation of employment. Disclosure of such information may lead to dismissal of an employee. The employer is entitled to take legal action against an employee if such employee discloses confidential information even after cessation of employment.

The Court considers that information to be confidential:

  • If the information is of immense value to the employer for conducting the business;
  • If the employer had spent considerable amount in research and development in relation to the information;
  • If the information is restricted to the people involved in the employer’s business only;
  • To the extent to which the information is known inside the business; and
  • If the employer had taken sufficient measures to safeguard the secrecy of the information.

To prevent the leakage of any confidential information, the employers also often take resort to restraint of trade clause which prevents employees from starting their own enterprise dealing with almost similar business idea or set up or being employed in a competitor’s business for a definite period of time or within a defined geographical area. Such a clause is also called a non-competition or a non-compete clause.

The enforceability of the restrictive clauses depend upon the fact whether they are necessary to protect the employer’s legitimate interests. The entire employment contract will be judged contextually to decide whether such clauses will be considered to be enforceable. As a general rule, the clauses cannot simply be provided for limiting competition or maintaining the employer’s competitive advantage in the market. The Fair Work Commission is specifically responsible for dealing with unfair dismissal and unlawful termination applications.

It should also be borne in mind that absence of a written employment contract or a confidentiality clause will not stop the Court from reading an implied responsibility of maintaining confidentiality on part of the employee. There is a mutual obligation of maintaining a relationship of trust and both the employer and employee should endeavour to uphold it.

Recently, in the cases like Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111 and OAMPS Gault Armstrong Pty Ltd and Anor v Glover and Anor [2012] NSWSC 1175, the Court upheld the non-compete clauses in the employment contracts. The decisions reinforce that Courts will favourably enforce non-compete clauses to protect the interests of the employer and prevent ex-employees from joining competing organisations, apart from the intention of protecting confidential information.

Executive Employment

The protection of confidentiality gains importance in the matter of executive employees since they are privy to most of the business decisions and have access to intellectual property of the business as well. Thus, the confidentiality clauses in executive employment contracts should be drafted in such a way so as to assert ownership of the confidential information and intellectual property on part of the employers.

Similarly, a non-competition clause should prohibit the executive from pursuing employer’s clients, customers, suppliers and employees for a definite period and within a specified geographical area after cessation of employment.

An executive is under a duty not to disclose confidential information obtained during the course of employment. This obligation arises out of an expressed or an implied term in the employment contract.

Our employment lawyers in Sydney are experienced in dealing with employment law related issues. In case you are seeking help to negotiate your employment contract favourably or you are keen to have your contract evaluated in the light of confidentiality and non-competition clauses, please feel free to contact our team of experts.

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