Be careful what you do with confidential information

While most employment contracts for real estate industry participants contain clauses which restrain employees from using confidential information after their employment has ended, the recent settlement of a claim between a real estate agency and a former employee serves as a timely reminder to real estate professionals that utilising a former employer's confidential client information can be very costly.

Toop & Toop Real Estate is a well-respected real estate agency in Adelaide. In June 2015, an employee of the agency for seven years, Ms Hooper, left the agency's employ after disciplinary action had been taken against her. The following day, she commenced employment with a competitor, Harris Real Estate.

Proceedings were commenced by Toop & Toop against Ms Hooper and her new employer in the Adelaide District Court. Toop & Toop alleged, inter alia, that Ms Hooper had planned on leaving the agency before she resigned and had arranged to take some of the agency's clients with her. Ms Hooper was also alleged to have copied some 700 pieces of confidential client information and had printed data relating to more than 240 clients from the agency's database, with the intention of using this information to the benefit of her new employer. It was also alleged that she had solicited work from 15 people who had previously conducted business with Toop & Toop and had executed seven sales agency agreements on behalf of her new employer whilst still working for Toop & Toop.

In addition, it was alleged that she had interfered with Toop & Toop's customer database by amending contact lists which described potential clients as being 'hot' and downgrading them to 'warm' or 'cold' so as not to promote further contact by the agency.

Toop & Toop alleged that these actions resulted in a loss to them of approximately 39 clients, who had all diverted their business to Harris Real Estate, costing close to $30 million in property sales, and roughly $237,000 in commission.

The parties subsequently engaged in settlement negotiations and agreed to resolve the matter by way of a payment to Toop & Toop of $750,000 (inclusive of interest and the costs of the proceedings). In addition, the confidential client information was returned to Toop & Toop.

In ordering Ms Hooper and Harris Real Estate to pay the damages sum within 21 days, Auxiliary Judge Clayton congratulated the parties for arriving at a settlement and commented that "this result is one which demonstrates commercial nous."

It is important to note that whilst Ms Hooper was the one who had allegedly breached her employment contract in utilizing the information, Harris Real Estate was also responsible for the misuse of the information which Ms Hooper had taken from her former employer.

This matter provides a reminder to all property professionals that the misuse of a former employer's or a competitor's confidential information can be a costly mistake. It must also be appreciated that whilst an agent may breach his or her own post-employment obligations by misusing confidential data belonging to a former employer, the new employer is also likely to be exposed if it is encouraging, or indeed even permitting, the agent to access and use that information whilst in its employment.

Best practice tips

First and foremost, principals should ensure that they have robust employment contracts in place for all employees, regardless of their role, which will properly protect their confidential client information. These contracts should include appropriate and enforceable restraints of trade to ensure that departing employees cannot attack their business.
In this regard, principals may wish to consider utilizing the REIQ's RealworksHR Platform, which contains bespoke employment contracts which are specifically drafted for real estate industry participants. Visit https://www.reiq.com/my-reiq/realworks-hr/ to learn more about RealworksHR.

Whilst agents routinely move to competing agencies, it may be the case that new business follows the agent as a result of an existing personal relationship or the seller having a high regard for the work of that agent. However, agents and employers should ensure that no confidential information is misused in order to take business from a former employer.

Agents should familiarise themselves with the terms of their employment contracts if they are contemplating a change of employment so that they are aware of what their post-employment obligations are. Similarly, new employers should also make appropriate enquiries of new staff to ensure that they understand what restraints may be in place.

Employers with departing staff should ensure that former employees are aware of their ongoing obligations to keep client information confidential. However, it is also prudent to take additional steps to secure client information when staff leave their positions.

In this regard, employers should ensure that any passwords and remote access to the agency's network are updated as soon as employees depart (in some instances, it may be appropriate to do this as soon as an employee tenders his or her resignation) to prevent them from continuing to access confidential client information.

Any allegations or evidence that a former employee has misused or accessed client information belonging to the agency should be file noted and kept on file. It may also be necessary to engage IT professionals to investigate the scope of any leakage of information. The employer should then seek legal advice in relation to potential steps to prevent the employee from misusing that information, which may include the issuance of a cease and desist letter, or in more serious instances, applying to the court for an injunction.

Learn more about Agency Practice!