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“The IP? It’s with me!” Workplace investigation does not stand up to court scrutiny during commercial confidentiality case

The Federal Court has refused to compel three employees to hand over documents to their former employer to help it decide whether to sue them for breaching contract and corporations laws, finding the company had failed to make enough inquiries of its own before seeking discovery orders.


A company that provides laboratory testing to the resources industry believed it might have a case against the employees and their new employer, a competitor for breaches of contract, fiduciary duties and confidence, as well as contraventions of sections 182 and 183 of the Corporations Act 2001.

It suspected that the employees had taken some of its confidential information and given it to the new employer, which another former employee had recently established down the road from the company’s office.

After the three employees left in November 2012 to take up employment with the new employer, the company engaged a forensic investigator specialising in IT to examine its hard drives and email activity.

The investigator's report revealed that the employees had accessed documents on the hard drives shortly before leaving the company, and had also sent emails to their home addresses attaching documents that the company believed were confidential.

Under r7.23 of the Federal Court's rules, it can order a person to provide documents to a prospective applicant to enable it to decide whether to launch proceedings, but only after that applicant has made its own "reasonable inquiries". The judge said that where the employees had a legitimate reason to access the information, it was not enough under r7.23 to show that they were in a position to compete effectively with the complainant.

"More is required to found a reasonable belief that those employees have or would misuse confidential information of that former employer or that they have passed it on to a new employer," said the judge.

The judge said it was significant that company had not undertaken any inquiries, other than the forensic examination of its computers. The company had not asked the employees questions about their possession of confidential information, nor had it made inquiries of existing employees or clients, nor the new employer. The judge said the fact that the employer's management might have been sceptical about any responses to such inquiries did not "negate the need to make them".

This failure meant that the company had not established that its concerns rose above "suspicion" to "the necessary standard of belief" that it had a case against the employees, the judge said.

She said the company's examination of the hard drives was also limited, as it only revealed whether documents had been accessed, not whether they had been copied. In her view, the company had used the discovery proceedings as an alternative to the inquiries it was required to make.

The judge generally accepted evidence from the employees that they had accessed documents and sent emails to their homes as part of their normal duties. The senior of the three employees told the court he sometimes sent emails home to either read at his leisure of to help him complete work.

"He said that it was difficult to access work emails at home on the (company) laptop due to an extremely slow and unreliable internet connection and he had a large screen at home which made them easier to read. I accept this evidence," the judge said.

The judge said the employer’s belief that it had a claim in relation to another of the employees who emailed a client list to his home address was reasonable, but its failure to make inquiries of him or the new employer meant that she declined to order discovery.

This case underlines the need for professional and thoroughly conducted workplace investigations that can withstand scrutiny in a court of law. iHR provides a range of investigation services, from dealing with informal complaints to significant and complex formal investigations. iHR can also review your internally conducted workplace investigations, providing advice or recommendations. This service can help ensure internal workplace investigations are sound and will stand up to external testing.

 

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