During an employee's course of employment, an employee often has access to confidential information and trade secrets belonging to the employer, such as customer lists and data bases, product lists and other confidential know-how.
There have been cases where a former employee has taken away and used his/her former employer's confidential information or trade secrets after he/she has left the employment for future exploits such as setting up and replicating the business or for the purposes of using such confidential information or trade secrets upon joining a competitor.
This leaves the former employer in a vulnerable position and it is therefore important for the former employer to take effective steps to protect its business. In order to protect the business, an employer should enter into a contract of employment with each of its employees containing both:-
- a valid and enforceable confidentiality clause clearly defining the confidential information it seeks to protect; and
- valid and enforceable restrictive covenants to restrict an employee from competing against his/her employer and soliciting its employees and customers.
A discussion regarding the enforceability of restrictive covenants will be covered in our next seminar series (see page 5 for seminar details). However, it should be noted that restrictive covenants should go no further than necessary to protect the legitimate interests of the business of the employer and should be reasonable in all the circumstances of the business of the employer.
In the event that a former employee breaches his/her confidentiality obligations or his/her post-termination restrictions, a former employer may commence legal proceedings against the former employee for breach of contract and claim damages. However, this may not be an adequate remedy if a former employer wants to stop the former employee from continuing to use the confidential information or trade secrets to further his/her own endeavours. A classic example would be a former employee taking away the client list belonging to the former employer and successfully soliciting and engaging in business with those clients. The former employer's objective would be to stop the former employee from carrying on business with those clients. However, the commencement of legal proceedings in the usual way would not meet this objective as it may take a considerable amount of time before the case proceeds to trial and a claim for damages may only entitle the employer to monetary compensation. In such a scenario, what may be more important to the employer is to prevent that employee from dealing with those clients and to stop the employee from using the employer's confidential information and trade secrets.
An alternative remedy is what is known as a springboard injunction. The policy underpinning this principle is to put the possessor of the confidential information under a special disability and thereby create some form of level playing field.
Traditionally, springboard injunction relief is an order granted by the Court which prevents a former employee from gaining an unfair advantage or a "head start" by using his/her former employer's confidential information or trade secrets in his/her new business. The Court is prepared to take away the unfair advantage or "head start" gained by the former employee by the misuse of confidential information or trade secrets, but no more. The Court will not put the former employer in a better position than if there had been no wrongdoing.
The relief granted depends on the facts of each case and the Court will exercise its discretion flexibly in order to provide the necessary relief. Where a former employee solicits and engages in business with clients belonging to the former employer by using the former employer's confidential information or trade secrets, the Court may make an order restraining the former employee from dealing with those clients for a certain period of time it thinks reasonable and should direct the former employee to return the misappropriated confidential information.
UBS Wealth Management (UK) Ltd and another v. Vestra Wealth LLP  EWHC 1974 (QB)
In Hong Kong, springboard injunctive relief is probably confined to cases in relation to misuse of confidential information and trade secrets. However, the springboard doctrine has evolved and was expanded in the UK case of UBS Wealth Management (UK) Ltd ("UBS") against Vestra Wealth LLP ("Vestra")
UBS, a wealth management business giving advice to clients on their investments of their assets had employed Mr. Scott after buying out a stockbroking firm which was managed by him. Some time after the takeover, Mr. Scott resigned from UBS and founded a new company, Vestra and took with him 75 UBS employees.
UBS claimed that that Mr. Scott had acted unlawfully by soliciting both its employees and clients. UBS sought an interim springboard injunction to prevent Vestra and other defendants from taking unfair advantage of alleged breaches of contract of former UBS staff.
The Court had to consider whether the remedy of a springboard injunction was confined to the misuse of confidential information and trade secrets, or whether it could also be used in cases where there was no such issue, but instead, simply a breach of contract.
The Court granted interim springboard relief to UBS until the trial preventing the former employees from further defecting staff or clients of UBS with whom they had recent dealings. The Court found that such relief did not only apply to cases in relation to misuse of confidential information or trade secrets by employees, but that it also applied to prevent any future, or serious economic loss to a former employer caused by former employees taking an unfair advantage of any serious breaches of their contracts of employment. It remains to be seen as to whether Hong Kong will adopt similar principles.
- regularly review their employment contracts and policies to ensure that the employment contracts contain sufficient protection;
- review the restrictive covenants in their employment contracts to ensure that such clauses are reasonable and go no further than protecting the legitimate interests of the business (otherwise they are unlikely to be enforceable);
- review the confidentiality clause in their employment contracts to ensure that "confidential information" is clearly defined and regularly updated as the business evolves; and
- remind employees of the seriousness consequences of misuse of confidential information and trade secrets.