The laws regulating the protection of confidentiality (including trade secrets) and post termination competition have always been complicated. Extensive case law and restraint of trade principles balance the rights of employers and employees.
Two recent developments suggest that protecting your business may become even more complex. The new EU Trade Secrets Directive sets out rules on the unlawful acquisition, disclosure and use of trade secrets, potentially giving businesses greater protection. However the UK Department for Business, Innovation and Skills (BIS) has just announced a “call for evidence” on whether post termination restrictions in employment contracts stifle British entrepreneurship by preventing employees from starting up their own business, suggesting that there may be a reduction in traditional protections for businesses.
New Trade Secrets Directive
On 14th April 2016 the European Parliament voted to approve the new EU Trade Secrets Directive. The primary purpose of this Directive is to impose a minimum harmonised standard of protection of trade secrets across the EU. It will affect all commercial activities, but as the misuse of information is common among departing employees the impact in an employment context is particularly relevant.
Although UK case law has given guidance and examples of “trade secrets” there has never been a statutory definition of a trade secret. However Article 2(1) of the Directive provides a definition. A trade secret is defined as information that is secret in the sense that it is not generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question, has commercial value because it is secret and has been subject to reasonable steps by the person in control of the information to keep it secret. This definition is arguably wider than what is currently deemed to be a trade secret in an employment context, but is narrower than certain“confidential information” which has been protected in UK courts.
Agreeing common definitions for other terms will be particularly important in assessing the impact of this Directive. For example the Directive (Article 4(2)) will prohibit the acquisition of a trade secret through unlawful access to materials or other conduct which is contrary to “honest commercial practices”. This phrase is not defined and, as somewhat subjective, could be open to different interpretations across the EU. Article 1(3) provides that nothing in the Directive will limit employees’ use of information that is not a trade secret, or of “experience and skills honestly acquired in the normal course of their employment”. Lack of clarity may lead to differences of interpretation and disputes between employers and employees.
The Directive is limited in scope. There is a specific exception for whistleblowers “acting for the purpose of protecting the general public interest”. The interpretation of what constitutes “public interest” is likely to be another source of confusion and has already been the subject of litigation in the UK courts.
The Directive is expected to be approved by the European Council on 26th May 2016. It will then come into force 20 days after its publication in the Official Journal and the UK, if still a member state, will then have 2 years in which to implement it in UK legislation. If the UK does leave the EU after the EU Brexit referendum on 23rd June 2016 the implementation of this Directive will be affected and its impact is likely to be reduced.
So confidentiality issues may change, depending on the way the Directive is implemented in the UK; however the Directive specifically acknowledges that it is not intended to affect non-competition agreements between employers and employees.
BIS call for evidence on non-compete clauses
On 24th April 2016 BIS announced plans to investigate employment rules that could be stifling small businesses and entrepreneurship. This is part of a wider initiative aimed at developing a National Innovation Plan so that the UK can improve its innovation framework. BIS has already published a survey to assess other business issues which impact on innovation. These include regulation, procurement, access to finance and other issues.
A call for evidence is to be launched asking for views on non-compete clauses (restrictive covenants). The focus is whether these clauses hinder start-ups from hiring talented staff and act as a barrier to innovation and employment. Although this is purely a fact-finding initiative its results are likely to determine whether the UK imposes any statutory restrictions on non-competition clauses.
It remains “business as usual” for employers at this stage. However, those with particular trade secrets or business interests which require protection should participate in the call for evidence when it is published in order to influence any future changes.