How can you protect against 'ideas walking out the door' when staff are let go? And what rights does the company have in relation to confidential information and trade secrets?

Tough times call for tough measures and every employer, including those in agency and media companies, are unfortunately taking measures that, more often than not, result in redundancy. However, for every action, there is a consequence and it is no different when it comes to the termination of an employment relationship.

The First Case Study

An employee is told of an idea that his employer was planning to develop. Due to the recession the plan was shelved but not dismissed. When that employee was let go he developed the idea and made money from it. What rights does the company have?

For the purposes of the scenario mentioned above, we really only need to concentrate on trade secrets and confidential information.

In general, in Ireland, employees who acquire trade secrets and confidential information in the course of their employment hold the secrets and confidential information for the benefit of their employers and are not entitled to use or disclose them without the express or implied consent of the employer.

The obligation of an employee to hold confidential information and trade secrets for the benefit of the employer can be contained either in the express terms of an employment contract or if the employment contract is silent on the point, it can be implied as part of the duty of good faith and fidelity which every employee owes to his employer.

However, it is of greater benefit if such obligations are contained within an employment contract. It can also be implied in equity as part of the fiduciary duties owed by an employee to an employer. And so while a contract of employment is in being, an employee is bound by a duty of fidelity owed to his employer not to disclose or exploit confidential information which he acquires in the context of his employment and the obligation would cover any information which could be classified as confidential.

However, what is the position when an employee leaves his employment for another role?

An employee leaving his employment is prohibited from:

Engaging in any activity during his employer's time to further his new venture.

Soliciting his employer's customers while still in the services of his employer on the basis that it is an obvious conflict of interest. Case law has held that it is an unlawful infringement of the employee's obligations to his employer.

Copying or memorizing confidential information or trade secrets.

A common difficulty in this area of law is to define the specific confidential information which the employer wishes to protect as against his ex employees.

Where there are difficulties in identifying confidential information and trade secrets with precision so as to enable a proper injunction to be granted by the Court prohibiting an employee utilising such confidential information, the proper way for employers to protect themselves is by exacting covenants from their senior employees restricting their field of activity after they have left their employment and not by asking the Court to extend the general equitable doctrine of duty of fidelity to prevent breaking confidence beyond all reasonable bounds.

So as regards the first scenario mentioned above regarding an ex employee using an idea from his former employer, the answer depends on whether the idea could be classed as confidential information or a trade secret. It is extremely difficult to protect an idea, per se, it is usually the manifestation of that idea that can be protected in the form of either a patent, trade mark, copyright or design.

However, depending upon the particular idea, it may be possible to classify same within the category of confidential information. However, the important thing about confidential information is that that it is clearly marked as confidential information and that it is disclosed only under an obligation of confidentiality and such an obligation exists in an employment relationship. In short, trade secrets and highly confidential information remain protected by the duty of fidelity which continues despite the termination of the contract of the employment.

The Second Case Study

A senior account director was let go. He set up a company and persuaded one of our most substantial clients to 'leave with him'. What can the company do about this?

In the case of an ex senior account director persuading one of your key accounts to "leave with him", again a lot will depend on what is in the employment contract. If he was a senior account manager, does he have to abide by a non solicitation obligation not to solicit the company's customers for a certain period?

Please be aware that such non solicitation provisions do not prevent the customer deciding for his own reasons to do business with the ex employee's new company. However, where a senior employee and particularly an employee who is also a director, resigns in order to exploit a corporate opportunity of the ex-employer, he may in certain circumstances be held liable to account for all profits made. An employee cannot make a secret profit for himself by utilising the assets of the employer including its information and opportunities.

However, it is not all about protecting your own company's intellectual property. You need to ensure that you do not inadvertently infringe third party intellectual property rights. Just like a company protects its software against viruses, you also need to prevent the use of third party intellectual property rights that may be brought into the company by new employees.

You do not want to be the subject of an injunction application to prevent the use by you of another company's intellectual property rights.

It is important that you do not overlook this type of exposure because of this type of infiltration and that you are in a position to prevent such infiltration and to manage such a situation that you accidentally do acquire such type of information.

In terms of managing your intellectual property, it would be advisable to take note of the following guidelines:

  • Clearly identify all your IP rights and IP rights of third parties and educate your workforce as to the importance of IP.
  • Clearly mark as confidential information all confidential information and trade secrets and only disclose under an obligation of confidentiality.
  • Take specialist advice on the possibility of formal registration of rights such as trade marks, patents and designs.
  • Set out clearly defined roles within your organisation for areas such as contract management, IP portfolio management and employee innovation reporting and ensure proper contractual arrangements are in place.  

Some Useful Definitions.

The majority of companies are now well versed in protecting registered intellectual property rights such as patents, trade marks and designs, but some companies tend to fall down when it comes to protecting rights that it does have to register such as confidential information and trade secrets. It may be appropriate to briefly explore the different types of intellectual property and what is meant by the various rights comprised in the definition of intellectual property.

Patents are monopoly rights in an invention which can be enforced against third parties and are protected in Ireland by the Patents Act 1992. Copyright is the exclusive right to do or authorise others to do certain acts in relation to original literary, musical, dramatic or artistic works.

Copyright is given statutory protection in Ireland in the Copyright and Related Rights Acts 2000 and 2004.

Trade Marks are signs capable of being represented graphically which can distinguish the goods or services of one undertaking from those of another. They are given statutory protection in Ireland under the Trade Marks Act 1996.

Designs are protected by the Industrial Designs Act 2001 which protects the appearance of articles, both three dimensional (shape) and two dimensional (surface decoration).

Trade Secrets concern information relating to commercial processes, e.g. manufacturing or production, which, if disclosed, would constitute breach of confidence or of contract.

Confidential Information is information which parties to a contract or arrangement require not to be made public or disclosed to third parties. Confidential information can clearly include items such as trade secrets but is also much broader in that it could cover things like business plans, customer lists, future plans and systems

Know How relates to the information and techniques likely to assist in the manufacture or production of goods etc.