When Restraint Clauses Protect Confidentiality

Overview

The recent decision in Broadband Solutions Pty Ltd v Ramirez [2024] FCA 1009 is a compelling example of how restraint and confidentiality clauses in employment contracts can be used to protect a company’s confidential information and intellectual property. In this case, the Federal Court of Australia, under Justice Thawley, granted interlocutory relief to Broadband Solutions (Broadband), an internet service provider, against its former employee, Mr Andres Julian Hernandez Ramirez (Mr Ramirez), for alleged breaches of contract and the Corporations Act 2001.

The proceedings

Broadband commenced proceedings in the Federal Court seeking an injunction against Mr Ramirez, alleging breaches of his employment contract, including unauthorised use and disclosure of confidential information and intellectual property. The court also considered whether Mr Ramirez’s actions violated section 183 of the Corporations Act, which concerns the misuse of information obtained in a corporate capacity.

The case was brought to light when Broadband discovered that shortly after his departure, Mr Ramirez accessed and downloaded several confidential documents from Broadband’s database. These documents were alleged to be executed from his personal computer, contrary to the company's policies and the terms of his employment agreement.  

Employment contract

The relevant sections of Mr Ramirez’s employment agreement were as follows:

17. CONFIDENTIAL INFORMATION

17.1 You must at all times:

1. keep secret any Confidential Information, and not use, copy, or disclose Confidential Information, except to the extent that you are authorised to do.
2. ensure that all material on which Confidential Information is recorded is secure and protected from any unauthorised use, disclosure, or access.
3. only use, copy, and disclose Confidential Information for the Company's benefit, and not in any way that may cause injury or loss to the Company; and
4. notify the Company if you become aware of any potential, unauthorised disclosure of Confidential Information

17.2    In this Agreement, “Confidential Information” means any information acquired by you during or relating to your employment, whether or not marked as confidential, relating to:

1. the financial, accounting or business details of the Company (including any pricing lists or policies, balance sheets, and financial statements and reports).
2. the personal, legal, business, and financial details regarding the clients of the Company (including any contact details, lists and usual client preferences).
3. the agreements, contracts, and business arrangements of the Company (including this Agreement); and
4. know-how, trade secrets and intellectual property, and the strategic marketing and advertising plans and strategies of the Company, but does not include information that falls within the public domain other than because of a breach of law.

17.3.    In this clause, “Company” includes a Related Body Corporate and a Related Entity of the Company, as defined by the Corporations Act 2001 (Cth).

19. POST - EMPLOYMENT RESTRICTIONS

19.1 During your employment it is expected that you will acquire a detailed knowledge of the Business and the methods of operation of the Company, will become known to and develop relationships with its clients, and will be privy to it Confidential Information and Intellectual Property.  Each of these is a valuable part of the Business, which it is important that the Company is able to protect.

19.2 You accordingly agree that you will not, during the Restraint Period without the prior consent of the Company, directly or indirectly on your own or any other person or entity's behalf in any material capacity (whether as employee, agent, officer, contractor, promoter, equity holder or beneficiary):

1. in the Geographic Area, be employed or be engage by, or be interested or concerned in, any enterprise or endeavour that competes with the division of the Company in which you worked during the last 12 months of your employment.
2. approach, solicit, or entice away (or attempt to approach, solicit or entice away), any person or entity who was a client with whom you, or a person reporting to you, had work related dealing the last 12 months of your employment, so as to cause that Client to reduce the level of business that they would ordinarily provide to the Company.
3. approach, solicit, or entice away (or attempt to approach, solicit, or entice away), any person or entity who was a supplier who whom you, or a person reporting to you, had work-related dealings during the last 12 months of your employment, so as to cause that Client to reduce the level of business that they would ordinarily provide to the Company.
4. provide service, services or products to any person or entity who was a client with whom you dealt with during the last 12 months of your employment, that are the same as or substantially similar to those provided by the Company; or
5. approach, solicit, or entice away (or attempt to approach, solicit, or entice away), any person who was an employee, agent, contractor, or other staff member of the Company of whom you gained knowledge during your employment.

19.3    In this clause:

a.  “Restraint Period” means the maximum enforceable period of:

1. 12 months immediately following the cessation of your employment; or
2. 6 months immediately following the cessation of your employment; or
3. 3 months immediately following the cessation of your employment.

b.  “Geographic Area” means the maximum enforceable area of:

1. Victoria.
2. a radius of 60 kilometres of your primary work location during the last 12 months of your employment; or
3. a radius of 30 kilometres of your primary work location during the last 12 months of your employment; or
4. a radius of 15 kilometres of your primary work location during the last 12 months of your employment; and

c.    “Client”:

1. Means any person or entity with whom the Company had commenced discussions during the last 6 months of your employment, with a view to securing that person as a client.

Key allegations and findings

Mr Ramirez’s resignation from his position as an IT Support Engineer had taken effect by close of business on 31 May 2024. There were no glaring issues until 9 July 2024, when RT Edgar, a long-time client, notified Broadband of their intention to withdraw services. They cited general reasons for leaving, as well as disappointment that Mr Ramirez had left. RT Edgar’s email regarding the withdrawal of services was also copied to their new provider, Unified IT. It was also alleged that Mr Ramirez commenced employment with Unified IT shortly after his departure from Broadband.

Following this withdrawal, Broadband performed a search of the Activity Log on their system. Upon these inquiries, Broadband found that on the night of his resignation, Mr Ramirez had accessed 11 documents using his own personal computer rather than the company laptop, which he had returned to Broadband at the conclusion of his employment earlier that day. These documents were also found to be relevant to existing IT issues for RT Edgar, which were the focus of ongoing work by Broadband.

The company pleaded that Mr Ramirez had violated several clauses of his employment contract related to confidentiality, intellectual property, and restraint of trade. Justice Thawley found that Broadband had established a prima facie case that Mr Ramirez had breached these clauses. The court noted the strong likelihood that Mr Ramirez’s access to the documents after his resignation constituted a breach of these clauses and section 183 of the Corporations Act.

The balance of convenience

The court granted the interlocutory injunction based on the balance of convenience, finding that the potential harm to Broadband if the injunction were not granted outweighed any inconvenience or injury to Mr Ramirez. The court considered two factors set out in Warner-Lambert v Apotex, which is the likelihood of success and inadequacy of other remedies.^[1]  

Given the evident breaches of the employment clauses and section 183, and the inadequacy of other remedies, the court concluded that Broadband had established a prima facie case warranting interlocutory relief. The court tailored the injunction to limit its impact on Mr Ramirez’s ability to work, allowing him an opportunity to challenge the restraint order before it came into full effect.

Takeaways

The decision in Broadband Solutions Pty Ltd v Ramirez highlights the critical role that employment contract clauses can play in safeguarding confidential information and enforcing post-employment restrictions. It demonstrates the potential for such clauses to provide effective legal remedies when compared to general damages.

The court's decision illustrates the broad scope of relief available to protect a company's confidential information and competitive interests. By granting the interlocutory injunction, the court effectively restrained Mr Ramirez from using or disclosing Broadband's confidential information and engaging in competitive activities for a specified period.