Duty not to improperly use information at a company

By Vivian Michael | Company

Duty not to improperly use information at a company

Photo credit:  Raw Pixel, Unsplash

Directors and employees have a duty not to use information improperly. 

So, this includes using information for a personal or third-party advantage or to cause detriment to the company.

And this duty is in section 183 of the Corporations Act 2001 (Cth).  

Also, similar to the other director duties, the duty not to use information improperly also applies to an agent acting on behalf of a director.

Below I will explain the duty using a real life example. 

Civil and criminal offence

Now, if the Australian Securities and Investments Commission (ASIC), the regulator, brings an action for improper use of information, ASIC may consider criminal action for serious conduct that's dishonest, intentional or highly reckless. 

So, similar to the other general director duties, a breach of section 183 can be a civil and criminal offence.

Below we'll go through a case where the employer took legal action after former employees made use of confidential information to setup a competing business.

Case study

The case is Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Limited [2017].

Importantly, the employees in this case did not have a non-compete clause in their employment contracts and this did not stop the employer from taking legal action. 

And, I won't keep you in suspense, we'll start with the case outcome.

Case outcome 

​The former employees had to return the profits from their wrong doing.

Next, let's go through the employee's use of the information.

Improper use of information

Now, below are the allegations of improper use of information by Lifeplan employees Mr Woff and Mr Corby:

  • Mr Woff used business and financial intelligence in a presentation to the board of Foresters; and
  • While employees of Lifespan, Mr Woff and Mr Corby actively solicited the business of other funeral directors; and
  • Mr Woff and Mr Corby prepared written proposals that made false and misleading statements about Lifeplan; and
  • Made use of a database with funeral directors’ contact details kept by a company called Melbourne Mailing for Lifeplan; and
  • Made arrangements with Lifeplan's printer to produce prepaid funeral contracts for Foresters and their new company; and
  • Copying of documents, contracts, marketing and administrative documents for their new business with Foresters.

Recap

Directors and employees have a duty not to improperly use company information for personal gain, third-party gain or to the detriment of the company. 

And if ASIC brings an action against a company, it may seek civil and criminal remedies. 

The Lifeplan case gives us examples of improper use of information.

Do you have questions about using company information?





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About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to entrepreneurs launching in Australia that would otherwise DIY, rely on legacy contracts or go without.

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