By Peter Sise (Special Counsel) of Clayton Utz, 25 July 2019.
A confidentiality provision in an employment contract may not forbid a former employee from divulging information to a private litigant.
Employment agreements often contain confidentiality provisions that prevent an employee from disclosing information obtained during their employment after their employment has ended. There are limitations on the enforcement of these provisions. Most people know they will give way to the compulsory powers of a regulator or court. For example, a former employee cannot rely on a confidentiality obligation to refuse to answer a relevant question during cross-examination at trial or when being interviewed by a regulator.
But it is not so well known that these obligations may give way to an inquiry from a private litigant who is only preparing for a trial. It is important that employers are aware of this so that they know when it is prudent to relent on enforcing a confidentiality obligation prior to trial. It is also important that civil litigants are aware of this so that they know what to do when faced with a confidentiality obligation that may prevent them from speaking with a prospective witness prior to trial.
Make way for the administration of justice!
A confidentiality provision will not be enforced if doing so “would have an adverse effect on the administration of justice”. Such an adverse effect may arise where the provision hinders a trial or the mediation of a civil proceeding. In modern litigation, it is common for parties to file witness statements prior to trial and even mediation. Witness statements are often used as an alternative to a witness giving their primary evidence (called “evidence in chief”) orally. Giving evidence verbally may be time-consuming and complicated for complex matters. This could hinder the efficient conduct of a trial. Also, filing a witness statement ahead of trial prevents the parties from being surprised by a witness’s evidence.
But the benefits of witness statements are not limited to trials. They also assist mediations by allowing the parties to be better appraised of the other side’s case before they enter into settlement negotiations.
A confidentiality obligation may prevent a witness statement from being prepared if it forbids a potential witness from discussing certain matters with another person, particularly a lawyer who will prepare the witness statement. This gives rise to a tension between private contractual rights and the efficient administration of trials, mediations and, more broadly, justice. This tension and other matters were examined in the recent decision of Zantran Pty Limited v Crown Resorts Limited  FCA 641.
The contractual confidentiality obligations in Zantran
Zantran was an interlocutory decision for a shareholder class action brought against Crown Resorts Limited. The lead plaintiff in the class action wished to speak to several former employees of Crown to prepare for trial. However, this was likely to result in those former employees contravening confidentiality obligations in their employment contracts. If the lead plaintiff sought to speak with them, Crown could perhaps seek an injunction restraining this or the lead plaintiff could be at risk of committing the tort of inducing a breach of contract. To address these difficulties, the lead plaintiff applied to the Court for an order that the former employees be relieved of any confidentiality obligations for the limited purpose of conferring with the lead plaintiff’s lawyers and providing a witness statement in the court proceeding. Crown opposed this order. After considering the authorities in detail, Justice Murphy relieved the former employees of their contractual confidentiality obligations for this limited purpose.
Justice Murphy said the following principles were relevant.
- Courts are reluctant to relieve a witness of a confidentiality obligation in the pre-trial phase of litigation.
- A confidentiality obligation (whether contractual or equitable) will not be enforced by a court, or will be treated as void, if it has an adverse effect on the administration of justice. This is the “primary question” and it applies to both criminal and civil proceedings.
- The court must exercise its powers in a way that best promotes the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. This may dictate that a confidentiality obligation is overridden in some circumstances.
- Determining whether the confidentiality obligation is overridden is a balancing act which depends on the circumstances of the case.
When performing this balancing act, Justice Murphy was influenced by the following factors, among others.
- His Honour had made orders for the provision of witness statements prior to trial to assist the efficient conduct of the trial and to ensure the parties were forewarned of the evidence that would be given at trial. Upholding the confidentiality obligations would cut across these orders and almost “inevitably” result in adjournments and delays to the trial.
- Providing witness statements prior to trial would facilitate a settlement of the matter.
Take away points
A confidentiality provision in an employment contract may not forbid a former employee from divulging information to a private litigant prior to trial. Whether it does will depend on the circumstances of the case. In addition to the points mentioned above, there are some other important issues to bear in mind.
First, no-one owns a witness in a court proceeding. To put it another way, there is “no property in a witness”. For that reason, an employer should not tell a former employee that they are forbidden from speaking with another litigant, but they may tell them that they must honour their confidentiality obligations until they are relieved of them. This is particularly important for in-house lawyers who are subject to rule 23 of the Australian Solicitors’ Conduct Rules which forbids a solicitor from discouraging a prospective witness from conferring with an opponent but permits the solicitor to advise the prospective witness of relevant confidentiality obligations.
Second, a solicitor should not contact a current employee of another litigant where that litigant is legally represented. This may infringe rule 33 of the Australian Solicitors’ Conduct Rules which places strict limits on when a solicitor may contact the client of another solicitor.
Third, if interviewing a former employee may breach a confidentiality obligation, the prudent course is to seek the permission of the former employer to conduct the interview and failing that, to seek an order from the court relieving the former employee of the obligation, as was done in Zantran. On this point, it is worth remembering the words of Justice Campbell of the NSW Supreme Court: “Solicitors sitting in their offices do not have the power to relieve people from, or override, contractual obligations of confidence, merely because they wish to obtain information to use in litigation.” (AG Australia Holdings Ltd v Burton & Another (2002) 58 NSWLR 464).
Fourth, if an employer receives a request from a private litigant to relieve a former employee from their confidentiality obligation, the employer should consider carefully whether insisting on the obligation is prudent. There are many potential issues to consider. For example:
- if the employer refuses and the private litigant makes a successful application to a court, the employer may be liable for the costs of the application;
- the employer may be required to co-operate under legislation that governs the behaviour of litigants, such as the Civil Procedure Act 2010 (Vic); and
- the employer may be willing to waive the obligation subject to measures being taken to ensure the former employee is only asked questions regarding matters relevant to the proceeding and legal professional privilege is protected.
 A v Hayden (1984) 156 CLR 532 at 556-557 (per Mason J).
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.
This article was originally published on the Clayton Utz website and has been reproduced with permission.