White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter - September 2007

In the matter of Ecolab Pty Ltd v Klen International Pty Ltd & Ors¹⁾, the Court considered a case in which an employee resigned from his employment with Ecolab and the following month commenced employment with Klen International ( “Klen” ). Ecolab and Klen are competitors.

Ecolab commenced proceedings against the ex-employee and Klen seeking to retrain the ex-employee from breaching his employment contract with Ecolab and from disclosing and using confidential information belonging to Ecolab. Ecolab also sought to restrain Klen from inducing the ex-employee to breach his employment contract with Ecolab and from using or inducing the ex-employee to disclose Ecolab’s confidential information, or from benefiting from its disclosure or use.

Pending the hearing of the dispute by the Court, Ecolab sought interim injunctive relief.

One day after having commenced annual leave from Ecolab, the ex-employee accepted an offer of employment with Klen. Computer forensic investigations undertaken on the ex-employee’s laptop found that on that day, the ex-employee copied a large number of Ecolab’s confidential documents from his laptop onto two CD-ROMs.

One day before he was due to return to work, the ex-employee forwarded a resignation letter by email to Ecolab. On his return to work, Ecolab performed an exit interview, and the laptop and a motor vehicle supplied by Ecolab were returned. The ex-employee signed a document confirming that all Ecolab’s property and equipment had been returned.

It was alleged that within the first month after leaving Ecolab, the ex-employee contacted a customer of Ecolab’s to inform them that he was leaving Ecolab and joining Klen and contacted and / or visited various customers with whom he had dealt with whilst employed by Ecolab, on behalf of Klen.

Ecolab’s lawyers wrote a letter of demand to the ex-employee stating Ecolab’s concern that he may have retained copies of documents containing Ecolab’s confidential information and demanding the return of all documents in his custody or control that record confidential information disclosed to him during his employment with Ecolab. The letter also sought an undertaking from the ex-employee that he would not directly, or indirectly disclose any of Ecolab’s confidential information or use it for his own purposes, or another person’ benefit; and that he would not in Western Australia for a period of six months, solicit or assist in soliciting any business from any customer of Ecolab’s with whom he dealt with during his employment with Ecolab.

A copy of this letter was also sent to Klen, under cover of a letter to Klen requesting that Klen undertake not to use Ecolab’s confidential Information acquired by the ex-employee during his employment with Ecolab; and not to induce the ex-employee to solicit, or attempt to solicit business from any of Ecolab’s customers with whom the ex-employee had dealt with during his employment with Ecolab.

The ex-employee denied that he had misused, or disclosed to any party any confidential information. Klen also denied having induced, assisted or encouraged the ex-employee to breach his employment contract; or having received, requested or used any information from the ex-employee that Ecolab may consider to be confidential.

After this, Ecolab commenced legal proceedings and information about the computer forensic finding was included in the affidavits served on the ex-employee. The ex-employee then admitted that he had copied the documents, but stated that he destroyed the CD-ROM’s after receiving the letter of demand.

At the hearing of Ecolab’s application for interim injunctive relief on 17 August 2007, the Federal Court ordered that:

• the ex-employee be restrained, until further order, from divulging or making use of specified confidential information belonging to Ecolab.
• Klen be restrained, until further order, from using or divulging specified confidential information belonging to Ecolab disclosed to it by the ex-employee
• the ex-employee be restrained, until further order, from soliciting or assisting in soliciting the custom of any person within Western Australia who was a customer of Ecolab or of whom he gained any knowledge, during his period of employment with Ecolab.
• Klen be restrained, until further order, from inducing the ex-employee to: solicit or assisting in soliciting the custom of any person within Western Australia who was a customer of Ecolab or of whom he gained any knowledge, during his period of employment with Ecolab; or disclose or use for the benefit of any person, the specified confidential information belonging to Ecolab.

In granting the interim injunctive relief, the Court reasoned that:

• There was evidence demonstrating a serious issued to be tried, in that the ex-employee threatened, unless restrained: to breach his employment contract in relation disclosing or using Ecolab’s confidential information; and to solicit or attempt to solicit business from customers of Ecolab; and
• There was evidence demonstrating a serious issued to be tried, in that Klen may induce or procure the ex-employee to breach his employment agreement and that Klen may use Ecolab’s confidential information disclosed to it by the ex-employee.

When hiring staff who have worked for your competitors, it is very important to ensure you do not induce them to breach any clauses of the former employment agreement, such as a restraint clause or obligations in relation to confidential information.

It is also important to ensure that your employees do not incorporate copyright works or other intellectual property owned by their former employer, such as source code in projects they work on. As seen in this matter, the actions of your employees could see you becoming a party to litigation, with the cost and inconvenience that entails.