Trade secrets and restraint of trade clauses

Trade secrets and restraint of trade clauses



Trade secrets and restraint of trade clauses

Quite often an employment contract will contain restraint of trade clauses designed to stop an ex-employee setting up a business or working for a competitor in competition with the previous employer. If there is no valid restraint of trade clause in an employment contract, there generally is nothing to stop that ex-employee competing with the employer.  That being said, whether there is or not a valid restraint of trade clause in an employment contract doesn’t mean an ex-employee can use the trade secrets they acquired in their employment.

There can be a conflict between laws relating to trade secrets on the one hand and restraint of trade clauses on the other hand. An ex-employee is able to set up business in competition with their ex-employer or be employed by another business and use the skills and knowledge they have learned from the former employer.  A former employer may however look to contend that the skills or knowledge are in fact trade secrets.

When disputes arise, courts will look at whether the ex-employee has breached any obligations of fidelity owed by an employee to their employer and if there has been a misuse of confidential information.  While ex-employees can use the general knowledge and skill which they acquire as employees and even general knowledge about clients of a business but they are generally not able to exploit for their own advantage and to the detriment of their previous employer the detailed and intimate knowledge gained in their employment about clients’ individualities and peculiarities.

In other matters, courts consider the information that employees possess such as details of clients, the prospective projects and tender pricing information. In one case, ex-employees set up a business in competition with their previous employer and were successful in poaching the client at the direct cost to the ex-employer and held confidential information of the prior business and by using it, acted unconscionably, liable to pay significant damages to their prior employer.

The most important lesson to learn out of cases like these can often be an expensive one. Businesses and employers who value their trade secrets and confidential information should require all relevant employees to sign contracts at the start of their employment or when negotiating new terms, and be quite specific about what they consider is secret and what is not and also what an employee can and can’t do after they leave their employment.  A properly drafted employment contract makes it much easier to protect confidential information belonging to the business from being used to its detriment.

While defining something as a trade secret in an employment contract is important, it won’t make information a trade secret if it is not. That is why a restraint of trade clause is just as important as defining in the employment contract what a trade secret is.

Aitken Whyte Lawyers – Brisbane Solicitors

Contractual documents

Aitken Whyte Lawyers can assist you in clarifying the terms of employment by drafting appropriate employment or other contractual documents. We will write your agreements or employment contracts so that the terms between the parties are clearly set out and to minimise the risk of there being a dispute about what they mean.

Disputes relating to confidential information, trade secrets and restraints of trade

If you are already in a dispute, a threat is apparent to your rights, need to know what your rights are or urgently need to protect valuable intellectual property rights, Aitken Whyte Lawyers will provide you with commercial and practical advice and aggressive but fair representation to protect and pursue your valuable rights and interests. We are focused on results, have significant experience in fighting litigation in all courts and offer services second to none.

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