Technological advances make it increasingly easy for employees to appropriate and misuse their employer's confidential information. What steps can employers take to protect their assets?
What is confidential information?
Confidential information takes many forms, client databases, secret formulae, manufacturing processes, pricing structures are a few common examples.
To be capable of protection under UK law, the information must have:
- the necessary quality of confidence - it must not be useless or trivial and it must not be public knowledge; and
- been imparted in circumstances emphasising its confidential nature.
Confidential information can be split into two categories; trade secrets and confidential information.
Trade secrets are so confidential that if they were to come in to the hands of a competitor, there is a real risk of significant harm being caused to the owner of the information. A commonly quoted example of a trade secret is the secret recipe for a well-known soft drink. However, other commercially sensitive information, such as client lists and the services provided to them, can also amount to trade secrets.
What are the obligations of confidentiality during employment?
During employment, all employees are subject to an implied duty of fidelity which includes the duty not to disclose to third parties or misuse for their own purposes their employer's confidential information and trade secrets.
They may also be subject to more onerous contractual obligations but this will depend upon the drafting of their employment contract.
What about after the employment has ended?
After the employment ends, the implied duty of confidentiality will only protect trade secrets. This creates a difficulty for the employer who must establish that the information they are seeking to protect is not just mere confidential information but amounts to a trade secret.
However, this can be overcome if there is an express provision in the contract of employment to protect mere confidential information which may not necessarily amount to a trade secret.
Employers must make sure any confidentiality clause clearly defines the confidential information to be protected. If this is too general or includes information which is trivial, useless or is likely to already be public knowledge, the confidentiality clause will be unenforceable.
Even in the absence of an express confidentiality clause, the implied duty of fidelity will prevent a former employee from using confidential information which doesn't amount to a trade secret if:
- the information was obtained by the former employee whilst they were employed and is being used after their employment ended to compete with the employer; or
- the former employee steals information for the advantage of a competitor after his or her employment ended.
How do you distinguish between confidential information and the general skill and knowledge of the employee?
In some roles it may be very difficult to distinguish between truly confidential information and that which is simply part of the employee's general skill and knowledge which they carry around in their head. The best solution may therefore be to include post termination restrictions to prevent them working for a competitor for an appropriate period of time linked to the shelf life of any sensitive information. Such provisions must be carefully drafted. Our previous article considered restrictive covenant drafting for employment contracts.
What can an employer do if a former employee has taken or is suspected of taking confidential information?
The employer may be able to apply for an interim injunction to prevent the former employee or the competitor they are joining from using the confidential information to establish an unfair competitive advantage (often referred to as a springboard injunction).
A claim for damages can also be brought for any financial loss suffered and in some cases the employer may also be able to seek an account of any profit made. However, it is not always easy to establish financial loss in such cases.
An employer's options will be vastly improved if the contract of employment includes a confidentiality clause and post termination restrictions, particularly if the wrongdoing has been carried out by a former employee as opposed to a current one.
Tips for employers
- Include a specific confidentiality clause in the employment contract preventing use or disclosure of confidential information both during and after employment.
- Include a post termination restrictions, including a non-compete clause where appropriate, in the contract of employment.
- Include an express clause in the employment contract for all company property and confidential information (including both hard and soft copies) to be returned on demand or on termination of employment.
- Make sure that any definition of 'Confidential Information' in a contract of employment is wide enough to protect the employer but not so wide as to be unenforceable.
- Be careful not to breach the contract as this will release the employee from any contractual confidentiality obligations or post-termination restrictions. Paying in lieu of notice where there is no PILON clause will be a breach of contract.
- Make sure that any information deemed to be confidential is clearly marked as such and that this is impressed upon all who will come into contact with the information.
- Only circulate confidential information to those who need to know and make sure they are aware that the information should not be forwarded on to anyone else.
- Make sure hard copies of confidential information are kept locked away.
- Use password protection or encryption software for any confidential information stored on an electronic device.
- Be clear about who owns social media accounts operated for business purposes and consider including a specific clause in the employment contract dealing with this such as handing over of passwords.
- If you suspect there has been a breach of confidentiality, act quickly. Time will be of the essence in any application for an injunction.