Trade Secrets versus Confidential Information – what to look out for when you sign an employment contract and your obligations in the workplace
We are pretty confident that if you work in an Australian workplace then you would have heard your Manager or boss or HR representative talk about company “trade secrets” or “confidential information.”
In particular, if you have a written contract of employment then no doubt there will be a series of sections that talk about your obligations to protect the confidential information of your employer as well as their intellectual property.
But what exactly is a “trade secret”?
And what’s the difference between a “trade secret” and a company’s “confidential information”?
While both terms may seem similar at first glance, they hold distinct meanings and implications within the corporate realm.
Trade Secrets
The best way to think of trade secrets is that they encompass proprietary knowledge, practices, formulas, designs, processes and the like that provides your employer’s business with a competitive advantage.
These are closely guarded assets critical to maintaining a company’s edge in the market.
Examples of Company Trade Secrets:
- Coca-Cola’s Formula: What is their secret recipe? While many have tried to reverse engineer Coca-Cola’s recipe, no one has succeeded because the company has remained tight lipped on their formula. It gives Coca-Cola a monopoly on the market because no counterfeit has been able to get the taste exactly right. Their formula is a trade secret that gives them a demonstratable advantage over their competition.
- Google’s Search Algorithm: Google’s search algorithm is a closely guarded trade secret that fuels its search engine’s efficiency and accuracy. The intricacies of how it ranks web pages and delivers search results are proprietary information critical to Google’s success in the highly competitive tech industry.
- KFC’s Herbs and Spices Blend: The blend of herbs and spices used in Kentucky Fried Chicken’s (KFC) fried chicken recipe is a well-protected trade secret. This secret formula has been central to KFC’s brand identity and commercial success for decades.
In essence, a trade secret is something that is unique to a company and helps it stand out from its competitors. It’s the secret sauce that keeps customers engaged. If the trade secrets were leaked, the company would suffer potentially irreparable harm.
Of course, not all employers operate on this level of competition. Their trade secrets might not be highly sought after or appear to carry the same degree of secrecy. Nevertheless, your employer will certainly be concerned with protecting their trade secrets and taking steps to ensure that employees do not steal those trade secrets.
Company Confidential Information
Confidential information, on the other hand, encompasses a broader spectrum of sensitive data that a company wishes to keep out of the public realm for various reasons, including protection of proprietary information, compliance with regulations, or safeguarding sensitive customer data.
Unlike trade secrets, confidential information may not necessarily provide a competitive advantage but is nonetheless crucial for the company’s operations and reputation.
It is a common myth that confidential information must be marked “confidential” or “top secret”. So be aware!
Examples of Company Confidential Information:
- Financial Data: Financial statements, budgetary information, and projections are often considered confidential within a company. Disclosure of such data could adversely affect stock prices, investor confidence, and the company’s competitive position.
- Customer Lists: Lists of customers or clients, along with their contact details and purchasing history, are typically treated as confidential information. Unauthorised access or disclosure of this data could lead to loss of business, breach of privacy laws, and damage to the company’s reputation.
- Product Development Plans: Plans for future product releases, prototypes, and research findings constitute confidential information. Premature disclosure of such information could allow competitors to pre-emptively counteract or replicate the company’s innovations, undermining its market position.
Confidential information is basically any company information that your employer doesn’t want to be known by the public. It’s important to be aware of this because many employees have fallen into the trap of assuming that certain information is not a “secret” and is therefore not confidential information. If you take the information, even if innocently, it’s likely that your employer will accuse you of misusing their confidential information.
Key Distinctions
While both trade secrets and confidential information are valuable assets for a company, the primary distinction lies in their nature and significance in maintaining competitiveness and operational integrity.
Trade secrets are typically narrowly defined, highly specialised, and directly contribute to a company’s competitive advantage.
On the other hand, confidential information encompasses a broader range of sensitive data essential for various aspects of a company’s operations.
What to look out for when you sign an employment contract?
When you sign an employment contract it is imperative that you read the contract carefully to see what it says about company trade secrets, intellectual property and confidential information.
These clauses are often lengthy, wordy and confusing. They are often technical in nature and make your eyes glaze over. But it’s crucial to make sure you read the clauses and understand what they are saying.
Here is an example of what a definition of confidential information might look like in a contract:
“Confidential Information” means:
all information (whether or not it is described as confidential) in any form or medium concerning any past, present or future business operations or affairs of the company, or any customer, client, licensee, contractor or supplier of the company, including without limitation:
(a) trade secrets;
(b) information about the business and affairs of the company such as products, services, financial accounts and reports of the company and its clients, marketing and/or strategy plans, client proposals, sales plans, client prospects, information about fees, pricing information, supplier lists, research, financing, inventions, designs, techniques, plans, diagrams, graphs, procedures or processes, security information, sales and training materials, and operational information and methods;
(c) details and arrangements with third parties including information about clients, contact details, including email addresses for contacts, suppliers and contact persons, such as their specific requirements, arrangements and past dealings;
(d) customer names and addresses, client and prospective client lists, business cards and diaries, calendars or schedules;
(e) all technical and non-technical data, formulae, patterns, programs, devices, methods and research activities, ideas and concepts;
(f) all financial and accounting information, pricing lists, schedules and structures, product margins and financial plans;
(g) remuneration details (other than your own remuneration details);
(h) Intellectual Property rights; and
(k) all other information obtained from the company or obtained in the course of your employment
You can see from this example that the type of information that constitutes confidential information is much broader than just those documents that have red writing on them and are marked ‘confidential.’
So then what is NOT confidential information?
Information that is in the public domain (other than by a breach of your employment obligations) is not confidential information.
Information that is simply general knowledge (or know-how) acquired by you during the course of your employment is not confidential.
Information that is general or trivial information is not confidential.
Can I email confidential information to my personal email address so I can work from home?
Despite the existence of clauses in contracts that talk about trade secrets and confidential information, it is common practice for many employees to send copies of their employer’s confidential information to their personal email accounts. A lot of the time, it is for genuine work purposes, such as because you work from home and don’t have a work laptop and/or your employer has informed you that you can access the information in this manner.
You may have been operating in this way for years and your employer has never raised any issues with it.
You may have sent yourself information because the printer at work is down.
You may have sent yourself a presentation so you could keep working while travelling.
You might be under a pressing deadline and be concerned you won’t meet it unless you take the information home.
There are a plethora of reasons why you might end up with confidential information in your possession and all without any ill intent.
But that doesn’t mean your employer will be so understanding if the work relationship sours.
If you resign (or have your employment terminated), the first thing your employer will do is audit your work computer to see whether you have sent yourself confidential information. And if they discover that you have? Be prepared! A nasty and threatening letter is probably headed your way.
If they are extra concerned, they could apply to the Court for remedies such as damages for breach of contract – i.e. sue you.
How can I find out what my confidentiality obligations are in my workplace?
To avoid the inevitable strife that will follow if you end up with confidential information in your possession and your employer gets wind of it, it pays to be familiar with your workplace obligations.
- First, check your employment contract. Find out what your employer has defined as confidential information and make sure you understand what it means.
- Second, check if your workplace has policies and procedures around confidential information, working from home, data and privacy and the like. Chances are that there will be some policy (that you have probably never heard of) that explains how you can share information and what you can and can’t do when working from home.
- Third, make sure you have permissions, in writing, from your employer if you ever find yourself in a position where you need to access information outside of the workplace.
- Fourth, seek advice from an employment lawyer if you are unsure about your obligations or if you hold any concerns about your employer accusing you of misusing their confidential information.
