INSIGHT

Confidentiality lost in court – restraining an independent contractor

By Simon Dewberry
Employment & Safety Industrials Litigation

In brief

An independent contractor kept and used a client list, but the New South Wales Court of Appeal decided the list had lost its confidentiality because it had been disclosed in court. Senior Associate Tegan Ayling reports.

How does it affect you?

  • You should put careful thought into whether a restraint is appropriate for a particular employee or independent contractor. Even more thought should go into drafting the restraint, and deciding what steps to take if the employee or contractor appears to be in breach.
  • To protect specific information that might not otherwise be considered confidential on its own, it is important to set out clearly in writing what information is to be protected (eg in the employment contract).

Background

Mr Isaac was an independent contractor who Dargan Financial Pty Ltd engaged as a mortgage broker.

After the arrangement ended in November 2016, Mr Isaac began working for RAMS Financial Group Pty Ltd and was a loan writer for nine of Dargan's clients. Dargan went to the Supreme Court, claiming that Mr Isaac had breached his confidentiality obligations because he used and kept a list of its clients. Dargan also claimed that Mr Isaac breached the non-solicitation and non-interference restraints in the agreement they had with him.

Mr Isaac admitted to keeping and using the client list, and to accepting approaches from Dargan's clients in breach of the non-solicitation restraint – but he said the client list was no longer confidential. He also argued that the restraints were unreasonable.

Dargan won in the Supreme Court, the court finding that Mr Isaac had breached his confidentiality obligations and the restraints. As well as paying damages, he was never to disclose or use the client list. Mr Isaac appealed the decision.1

The decision

On appeal, Mr Isaac argued that:

  • the restraints were unreasonable;
  • he had not breached the non-interference restraint; and
  • the decision to stop him using the client list permanently was wrong.

The Court of Appeal decided Mr Isaac had not breached the non-interference restraint, partly because it wasn't presented with enough evidence to support that claim. However, since he had admitted to breaching the non-solicitation restraint, the court did not consider that restraint to have been unreasonable.

Generally speaking, the courts take a stricter approach to restraints against an employee – but the same general principles apply to independent contractors. In this case, the Court of Appeal had to decide whether there was a difference between protecting Dargan's legitimate business interests and Mr Isaac's business as an independent contractor. It decided that, since the client relationships were with Dargan, it had a legitimate commercial interest in protecting its business and preserving confidential information.

Importantly, the term 'confidential information' had not been defined in Mr Isaac's agreement. As a result, since Dargan had not specified what information it considered confidential, only information that was confidential in character at the time could be protected. Further, the client list had not lost its confidentiality by the details being accessible on Dargan's database, in Mr Isaac's mobile phone or on his Facebook page. However, since Dargan had not sought court orders to protect the confidentiality of the information submitted in court, the Court of Appeal took the view that the information was no longer confidential, and that it was unnecessary to continue to protect it from use and disclosure by others.

Footnotes

  1. Isaac v Dargan Financial Pty Ltd ATF The Dargan Financial Discretionary Trust (ABN 68 702 047 521) (trading under the name of Home Loan Experts) [2018] NSWCA 163.