Employers: don’t have a restraint clause in your contracts of employment? All may not be lost.

A recent decision of the Federal Court in APT Technology Pty Ltd v  Aladesaye [2014] FCA 966 demonstrates that employees who attempt to use the confidential information of their former employers in their new business ventures can be restrained from doing so even if there was no formal restraint clause in the their contracts of employment with their former employers.

When APT discovered that Mr Aladesaye had established a business in competition with its own (whilst still its employee) and was taking or using client lists and know how he was summarily dismissed.

APT then asked Mr Aladesaye to provide undertakings not to use confidential information he had obtained in his employment with APT but the parties could not agree on the terms of the undertakings.

The result was that APT applied to the Federal Court to restrain Mr Aladesaye from continuing to use its confidential information.

As there was no formal restraint clause in Mr Aladesaye’s contract of employment, APT relied upon the “springboard principle” developed from a line of English cases and applied in Australia.

The springboard principle is that information a person has obtained in confidence is not to be used as a springboard for activities detrimental to the person who made the confidential information. The possessor of the confidential information must be placed under a special disability in the field of competition to ensure that he does not get an unfair start.

In the circumstances of the APT case Justice Foster made orders restraining Mr Aladesaye from approaching APT’s clients or using or disclosing APT’s confidential information or intellectual property to any other person for specified periods.

So if a former employee is using confidential information to a former employer’s disadvantage, the fact that the former employee had no restraint clause in his contract of employment may not be the end of the matter.

Obviously, employers best safeguard their positions if express and well worded restraint clauses are part of their contracts of employment.