No way, know how: What is the difference between confidential information and “know-how”?

During the course of the employment relationship, employees will inevitably gain knowledge or be exposed to information about the employer’s business that is considered confidential to its operations and which the employer does not want to be put out into the public domain.

It is for this reason that many employment contracts, particular for senior employees who have more exposure to such information, will contain clauses that aim to protect the employer’s confidential information and intellectual property in the event that the employee leaves the employment but still retains some of that confidential information.

However, there is a distinct difference between an employee taking “confidential information” and employee retaining business “know-how”, which can be critical in determining whether or not a court should grant injunctive relief to an employer in relation to a departing employee.

What is confidential information?

There are a number of factors that courts will consider in determining whether information is sufficiently “confidential” for it to be protected by a restraint that limits its use and disclosure outside of an organisation. Generally, confidential information will include things such as customer lists, pricing lists and information, business plans and strategies as well as research and development – information that would be detrimental to an organisation if it was disclosed to its competitors or the public.

Courts will consider a number of factors in determining whether or not information is confidential, such as the circumstances in which it was provided to the employee (i.e. was the employee advised at the time of receiving the information that it was confidential?), the extent to which the information is known outside of the business, the measures taken to protect the confidentiality of the information such as accessibility, as well as the currency and value of the information to the employer.

What is know-how?

Conversely, “know-how” is information which is given to an employee during the course of their employment and which, even though they may not retain the actual document which contains that information, nonetheless remains “in their head” and becomes part of their skill and knowledge.

Courts have historically adopted the view that employees cannot be restricted from retaining or using “know-how” which they have developed over the course of an employment relationship even if that “know-how” is shared on a confidential basis. This is in line with the principle that an employee has the right to use all of their skill, experience and knowledge for the purposes of earning a living (Faccenda Chicken Ltd v Fowler [1987] Ch 117).

NOVA Employment Ltd v Hira & Ors [2021] NSWSC 1337

In this recent decision of the Supreme Court of NSW, the Court was required to consider this distinction in determining whether or not to grant an employment service organisation interim injunctive relief against three former employees (a Business Development Manager, a Business Development Job Coach and a Transition SLES Job Placement Consultant) which would restrain them from joining a competitor.

By the time of the hearing, the Business Development Manager had provided suitable undertakings to the employer. The hearing therefore proceeded against the other two former employees.

The employer argued that, during the course of their employment, the employees had access to valuable information which underpinned its approach to service delivery and provided a framework for employees to undertake their duties, engage with employers, develop skills, secure work for clients and assist them in maintaining their jobs, as well as generating support for funding. By way of example, the employer referred to its preference to provide short CVs rather than long CVs to prospective employers.

The Court was of the view that this type of information fell into the category of “know-how” retained by the employees. The Court was not convinced that they had acquired “confidential information” simply because they had, during the course of their employment, compiled or read documents recording confidential information concerning the employer’s clients.

The Court therefore decided not to grant the interim injunctive relief against the two employees which would restrain them from joining the competitor. In making this decision, it also noted that the employees had already provided undertakings that they would not solicit any business from the employer or its clients, interfere (or attempt to interfere) with the employer’s relationships with its clients, employees or supplier or use any confidential information of the employer.

Lessons for employers

Whilst it is inevitable that employees will be exposed to and retain confidential information during the course of their employment, employers should take steps to ensure that its confidential information is protected as much as possible from use and disclosure if and when an employee leaves the employment.

This includes ensuring that employment contracts contain clauses which sufficiently protect the unauthorised use and disclosure of confidential information and clearly identify what information is considered to be confidential.

Shane Koelmeyer is a leading workplace relations lawyer and Director at Workplace Law. Workplace Law is a specialist law firm providing employers with legal advice, training and representation in all aspects of workplace relations, employment-related matters and WH&S.

02 9256 7500 | sydney@workplacelaw.com.au

Information provided in this blog is not legal advice and should not be relied upon as such. Workplace Law does not accept liability for any loss or damage arising from reliance on the content of this blog.

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