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When you run a business, it is common practice to engage independent contractors. It is also common that these contractors will be privy to your confidential information. For example, you might engage the services of a web developer who will know your business practices, client information and business plans. Unfortunately, contractors can misuse this information, competing with you or providing it to a competitor. Unlike employees, contractors won’t have employment contracts, which usually include a confidentiality clause. Instead, the contractor might provide you with their own contract, which makes no reference to confidentiality. This article explains what you can do when contractors share your confidential information.

What is a Breach of Confidence?

Breach of confidence is a legal action used to protect your trade secrets and confidential information. If a contractor shared confidential information when they were obliged to keep it secret, this is a breach of confidence.

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

  1. information was confidential nature;
  2. contractor needed to keep the confidential information secret; and
  3. contractor has misused the information or threatened to misuse the information.

For the information to be confidential, you need to be able to identify it and it has to be actually confidential (it can’t already be in the public domain). The information must also be commercially valuable to your business.

What Are the Remedies?

If you start court proceedings against a contractor for breach of confidence, you may be able to get:

  • damages;
  • an account of profits;
  • an injunction; or
  • a declaration.

Damages

‘Damages’ is another word for money or compensation in a court case. They are intended to restore you to the position (financially) you would have been in had the contractor not breached their confidentiality requirements.

Account of Profits

The court may also order the contractor to account for any profits they received as a result of the breach.

For example, if the contractor used your confidential information to take your clients or customers’ business away from you, you may be awarded the profits they have made as a result of this.

This remedy stops a contractor from unfairly making money from the breach.

Injunction

If the contractor has threatened to breach their confidentiality obligations or actually breached them, you can apply to the court for an injunction. An injunction restrains the contractor from committing future breaches and using your confidential information.

Declaration

A court may also make a declaration, which is a formal statement by a judge that the contractor has breached a duty of confidence.

What Are the Next Steps?

Court proceedings involve significant time and expense. They are also unpredictable and if you are unsuccessful, you may have to pay the other party’s legal costs (or a portion of those costs). For that reason, you should try to come to an agreement outside of court first.

You can send a cease and desist letter to the contractor, seeking a number of undertakings. An ‘undertaking’ is a legally enforceable promise to do something or not to do something.

For example, you might ask the contractor to undertake not to use your confidential information and to undertake to return all of your confidential information to you.

This is a good way to get some reassurance and protection from future beaches of your confidential information without the significant costs and stress of litigation.

Of course, these undertakings are not always given and you may be left with no alternative but to institute court proceedings, which will involve establishing your causes of action and proving all elements of your case.  

Key Takeaways

When you have shared information with a contractor in confidence, it is very distressing to learn that they have breached their obligations of confidence. If you do find yourself in a situation where a contractor has misused your confidential information, you need to take steps quickly to resolve the situation. You should start with contacting a lawyer to advise you on what steps are best for you to take next. If you need help protecting your confidential information, contact LegalVision’s IP lawyers on 1300 544 755 or fill out the form on this page.

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