The Supreme Court of Lithuania (the Court) has recently ruled on important matters concerning employees’ confidentiality obligations and restrictions on additional jobs during employment. As a result of this new court practice, we recommend reviewing existing employment contracts, confidentiality and non-competition agreements as well as internal HR documents with a view to evaluating whether they need amendment.
Additional jobs and non-competition
Employment contracts often contain an undertaking by the employee that, during their employment, they will not work for businesses that compete with the employer or even that they will have no additional job at all. Usually, such duty of the employee did not involve separate compensation, and non-competition during employment was taken for granted as part of an employee’s duty of loyalty during employment. However, the latest court practice has changed established market practice.
First of all, the Court has likened contractual restrictions on employees having additional jobs to non-competition agreements as these restrictions reduce an employee’s chances of earning extra income in the same way as non-competition agreements. This interpretation would operate irrespective of whether an employee’s additional job is with competitors or not.
Secondly, the Court has clearly stated that an employee’s duty of non-competition (as well as restrictions on additional jobs) during employment must be subject to additional compensation. Similarly to post-employment non-competition, compensation may not be included in remuneration. The contract should clearly define the purpose of compensation (i.e. for non-competition or restrictions on additional jobs during employment) and the amount.
Unfortunately, neither legislation nor court practice provides what amount of compensation would be sufficient. The compensation amount should be evaluated on a case-by-case basis considering the extent to which the restrictions applicable during employment reduce the employee’s chances of earning extra income.
We recommend treating non-competition during employment or restrictions on additional jobs similarly as non-competition after employment termination. This involves:
- agreeing on restrictions not with all employees but only with those employees whose job position really requires it (e.g. managers, employees dealing with particularly sensitive information);
- clearly defining the scope of restrictions;
- clearly defining the amount of compensation to be paid in addition to remuneration.
Moreover, employees who breach similar obligations but who have not received additional compensation should be treated with care when applying disciplinary sanctions.
In practice, the definitions “confidential information” and “commercial secret” are quite often used as synonyms. In the new court practice the Court has explained how these definitions differ and how this may affect practice.
What is sometimes inaccurately referred to as confidential information can be divided into several groups:
- Information that is substantially not secret and may be easily accessible. This may include, eg, financial statements submitted to the Register of Legal Entities, public information on shareholders, information on projects or business partners of a company published on the internet. Even if this information is included in the list of corporate confidential information or commercial secrets, it will not be considered confidential, and employees may not be disciplined for disclosing it.
- Know-how, i.e. information which, upon its availability, becomes an integral part of employees’ skills and knowledge: eg, practices, management or customer relationship methods applied in a company. If know-how is identified as confidential information in contracts, employees must comply with those confidentiality requirements during their employment. Upon expiry of their employment, however, former employees may use know-how for their own benefit without any restriction irrespective of what the confidentiality agreement states.
- Specific confidential information: information which is secret and is not exclusively know-how, but which does not meet the requirements for commercial secrets and does not per se give a competitive advantage (e.g. personal data, login codes, passwords). Employees must protect such confidential information both during and after expiry of their employment if that is provided for in contracts made with them.
- Commercial secrets, i.e. information that is secret and for this reason has a commercial value and gives a competitive advantage. For information to be regarded as a commercial secret, a company must make reasonable efforts to protect the information (e.g. to familiarise employees with a list of commercial secrets, protect with passwords). Employees must keep commercial secrets confidential without a separate agreement both during employment and for one year after expiry (unless a longer period is set in the agreement).
As the conditions for protecting information of different types and the consequences of confidentiality breaches differ, it is important that these definitions are not confused in employment contracts, confidentiality agreements and other internal corporate documents. Otherwise a company would face a risk due to imposing inadequate sanctions on employees who breach confidentiality or due to insufficient protection of confidential information.