Confidential information can be one of a business's most prized and valuable assets, regardless of the industry in question. However, it is rarely something which can be locked in a safe because employees often require access to it for the purposes of carrying out their duties.
Below we look at how confidential information is protected in the UK and what options are available when confidential information is misused.
The leading case of Faccenda Chicken v Fowler provides the foundation for modern legal principles and a brief summary illustrates the essence of both the difficulties in and importance of protecting confidential information.
Faccenda bred, slaughtered and sold chickens; Mr Fowler was employed as a sales manager for Faccenda but his contract did not have an express confidentiality restriction. He resigned and, the following year, set up in competition with Faccenda by selling fresh chickens from refrigerated vans. Mr Fowler sold his chickens to former customers of Faccenda, and also recruited some of his former colleagues.
The question for the courts was whether Mr Fowler was subject to an implied confidentiality restriction and, if so, whether he was in breach of that. Their conclusion was that, although Mr Fowler used commercially sensitive sales information obtained during his employment with Faccenda for the purposes of his new venture,that information was not a "trade secret" and, in consequence, there was no breach of contract.
What becomes clear is that, in the absence of express contractual confidentiality restrictions, courts in England and Wales will act to protect and prevent former employees from using "trade secrets". This will only include confidential information in the highest degree such as secret manufacturing processes, chemical formulae or confidential methods of construction – an often cited example of a "trade secret" is the recipe for Coca-Cola. The hurdle for information to be considered a "trade secret" is high but, if reached, then that information will be protected after termination of employment even in the absence of express confidentiality restrictions.
“Mere confidential information”
Information which falls short of being a "trade secret" will be "mere confidential information", either because an employee is informed that the information is confidential or because they are aware it is (for example because of the nature of their job or because information is marked as confidential). In the absence of express confidentiality protections, such confidential information will only be protected against misuse during employment but not after its termination. What will amount to confidential information will be fact specific and it is, at best, a nebulous concept.
After employment terminates an employee is permitted to use their skill, knowledge and know-how which, as we know from Mr Fowler, can include commercially sensitive information.
Express contractual confidentiality provisions
The best method of providing clarity to this grey area is to include express confidentiality provisions in the employment contract which clearly define what constitutes confidential information and provide for it to be protected after employment terminates. Ideally the definition of confidential information should be tailored to each company's individual needs. If a company can demonstrate a legitimate propriety interest in information, then it can be protected; information in the public domain (other than as a result of employee's breach) cannot.
In addition to specific express protection of confidential information, a well drafted employment contract should also include the right to require delivery up of company property at any time, including on termination. Equally it should include obligations on employees to delete information they may have stored on any personal devices upon request and upon termination and to produce such evidence of having done so as an employer may reasonably request.
Post-termination restrictive covenants
Above and beyond the basic contractual protection of confidential information it is advisable for employment contracts to include post-termination restrictions designed to prevent an employee from working for a competitor or from soliciting or dealing with clients, suppliers or former colleagues for a period of time after employment terminates. Post-termination restrictions need to be tightly drafted and go no further than is necessary to protect legitimate business interests, but well defined provisions (duration and scope) can provide excellent business protection.
Consequences of breach
If there are concerns that confidentiality may have been breached then the first step will be to establish, with evidence, what confidential information has been misused, by whom and to what extent. It will be equally important to identify the express or implied confidentiality protections that have been breached.
It is likely that the next step will be to put the (most likely ex) employee on notice of the claim (unless there is a real risk that doing so will place the confidential information at further risk). There may also be a cause of action against a former employee's new employer (or another third party) for inducing breach of contract.
The most common outcomes of confidential information action are as follows:
- Contractual undertakings (if a claim has not been issued) or undertakings to the court (if a claim has been issued) to deliver up and not to use the confidential information in question.
- Injunctive relief to restrain an ex-employee from using (or continuing to use) the confidential information. This will require the ex-employer to give a cross undertaking in damages to the court in case it later transpires that it was inappropriate to grant the injunction, for example because the information was not truly confidential.
- Damages in respect of the financial loss that the ex-employer has suffered as a result of the ex-employee's breach(es) of contract. In practice, such damages can be difficult to quantify.
EU Trade Secrets Directive
A new EU Trade Secrets Directive was formally adopted by the EU Council on 27 May 2016 to address the significant variation in trade secret protection across the EU. The EU definition of a trade secret pursuant to the directive is information which "is secret", has "commercial value" and has been subject to "reasonable steps" to keep it secret. This definition is potentially wider than the current English common law protection of "trade secret". The timetable for the directive to be implemented means that it will be implemented in the UK before "Brexit".
Express contractual protection of confidential information is absolutely fundamental but on a practical level, restricting key information to a limited group of employees and ensuring that it is clearly marked as "Confidential" and, where necessary, password protected, will all help limit the risks of a leak and assist any argument that the information has the necessary nature of confidence.