3 Tips for Protecting Your Confidential Information With Contractors

As a business owner, you will likely engage an independent contractor from time to time. It is also likely that these independent contractors will be exposed to some of your confidential information. For example, you might engage a bookkeeper who sees all of your financial information. You don’t want this contractor to take this information and use it to compete with you or provide it to a competitor.

While employment agreements usually restrain current and former employees from competing or misusing confidential information, contractors may provide you with a contract they have prepared. These contracts may not include clauses of this nature, exposing your business to risk. This article provides you with our top three tips to prevent contractors from breaching confidential information requirements.  

What is a Breach of Confidence?

‘Breach of confidence’ is a legal action used to protect your trade secrets and confidential information. It occurs when a party you have shared confidential information with (in circumstances where they owe you an obligation of confidence to keep your secrets and ideas to themselves) have breached that duty. They have either used the information or disclosed it to a third party.

In order to claim there has been a breach of confidence, you must prove that:

1. the information is confidential;
2. the information was communicated in circumstances where there was an obligation of confidence; and
3. there has been actual or threatened misuse of the information.

1. Specify That the Information is Confidential

To establish that information is confidential, you must be able to clearly and precisely identify the information. The information must be specific, unavailable in the public domain and you must have taken measures to keep the information secret. In addition, the information must hold some commercial value to your business.

Examples of information commonly considered to be confidential are:

• manufacturing methods;
• product designs;
• trade formulas;
• business strategies;
• client and supplier details;
• research and development data;
• budget data; and
• sales or distribution data.

You need to ensure that you characterise your business’ confidential information as confidential. If it is necessary to share confidential information with contractors, it’s crucial you make the contractors understand that they cannot share the information. Labelling your documents as confidential before providing them to your contractor will prove that the contractor had actual knowledge that the documents were intended to be confidential. Similarly, you can mark any important emails or documents with the heading ”confidential” before sending them to your contractor.

However, just because you write the word “confidential” on any material does not make it so. It still needs to be information that is capable of being protected by breach of confidence. For example, it cannot be information available in the public domain.  

2. Restrict Access to Confidential Information

Only expose your independent contractors to your confidential information on a ‘need to know basis’ (i.e. only if it is essential to them doing their job).  

Further, ensure you secure your confidential information, so access is not available to everyone. Restricting when knowledge is shared and to whom is a simple and effective way of protecting your confidential information.

Additionally, you should take steps to ensure confidential information is not freely available around your office. Keep hard copies of confidential documents locked away and electronic copies either encrypted or password protected. As mentioned above, label all confidential information as “confidential, so that, in the off chance a contractor stumbles across that information, they are aware that it should not be readily shared.  

3. Include Confidentiality Clauses in Your Contracts

Before you enter into an agreement with a contractor, you should ensure your arrangement specifies and identifies:

• information which is confidential to your business; and
• how the contractors are to deal with this confidential information, both during and after your working relationship.

Therefore, before you share any confidential information, your agreement should include clauses about the contractor keeping confidential information secret. The clause should extend their obligation of confidence to continue after they have ceased work for you. The agreement can set out what you define as confidential information either specifically or broadly.  

Further, it can also include the consequences for a breach of the agreement.  If the contractor breaches the agreement, you have a contractual right to take action against them. Such a clause also acts as a deterrent for the contractor, as they are made aware of the consequences of breaching confidentiality.

Key Takeaways

It is commonplace to engage the services of an independent contractor when conducting your business. It is unfortunate that, sometimes, these relationships result in the misuse of your confidential information. To minimise the risk of a breach, you should:

1. label your confidential information as confidential;
2. restrict access to contractors and only share confidential information with them on a need-to-know basis; and
3. include confidentiality clauses in your contracts.

These three tips are simple ways to protect yourself against a breach of confidence. In the event that you do suffer a breach of confidence, you should take immediate action, starting with contacting a lawyer to advise you on what steps are best for you to take next. If you need help protecting your business from a breach of confidence, get in touch with LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.