Protecting confidential information

The knowledge base of a company is its lifeblood, particularly if it is involved in manufacturing or developing a unique product or service. If competitors get their hands on confidential information, it can spell financial disaster.

One of the most likely ways this can happen is if an employee leaves the company and takes their former employer’s secrets with them. How can employers take steps to ensure that their information is protected?

Trade Secrets

These are defined as information that, should it fall into the hands of a competitor, could cause significant harm to the company to which it belongs. A feature or property of a particular product that would, in other hands, enable its duplication, would be classed as a trade secret. Other such information could include client lists and services provided to customers.

What are the obligations of confidentiality during employment?

Whilst they are working for a company, employees are subject to what is known as an implied duty of fidelity – this means that they are under an expectation not to disclose confidential information or trade secrets to third parties, nor to misuse such information for their own purposes. Depending on their employment contract and the way that it has been drafted, there may be more onerous contractual obligations on them.

What about after the employment has ended?

Once the employee has left the company, the implied duty of confidentiality only extends to trade secrets that the employee has learned while they were still employed.

This means that the employer needs to take a good look at the information that they are trying to protect, in order to confirm that it can be classed as a trade secret and is therefore possible to protect by legal means.

In order to circumvent the restriction, an employer can include in the employment contract a provision that the employee is obliged to protect confidential information that does not strictly meet the definition of a trade secret.

If employers make use of a confidentiality clause, they must make sure that it includes a clear definition of the confidential information that they are trying to protect. In order to prevent the clause becoming unenforceable, this definition cannot be too general, or contain trivial information not related to the product or process in question. Similarly, if the information is considered likely already to be in the public domain, there will be problems enforcing the clause.

If the employer has not used an express confidentiality clause, they may find that the implied duty of fidelity can be used to stop a former employee from making use of confidential information, even if it does not conform to the definition of a trade secret.

This may be the case if the former employee obtained the information during the course of their employment and is now using it for the purposes of competition. It may also be the case if the former employee has stolen the information after their employment finished and is now using it for the advantage of a competitor.

Confidential information v employee skill and knowledge

During their time with the employer, it would be very surprising if many of the employees had not acquired a level of skill and knowledge that would enable them to carry out their jobs to the best of their capability and in the best interests of the employer. The difficulty for the employer comes when they try to distinguish between that skill and knowledge and truly confidential information as the law would define it. For example, a company who employed a machinist to make a particular component for which only they had the design could class the design of that product as confidential information but not the knowledge inside the head of the machinist, gained by making the component day in and day out for months, if not years.

Probably the most practical solution for an employer who has employees with advanced technical knowledge of production techniques is to include within the employment contract a post-termination restriction that will prevent them from working for a competitor. This restriction can only endure for a specific length of time that is related to the relevance and currency of the sensitive information in question – in short, until the knowledge and skill of the employee is no longer current and of assistance to competitors.

However, since there have been legal cases where post-termination restrictions have been challenged and overturned, the employer will need to take great care when drafting them.

What can an employer do?

If an employer discovers that an employee has taken confidential information with them after leaving the company, they can apply for an interim injunction that will stop the former employee or the competitor for whom they are now working from making use of that information to give them an unfair competitive advantage. This is often referred to as a springboard injunction. The employer should act quickly as the timescale is all-important when an application for an injunction is made.

If the employer has suffered a financial loss as a result of a former employee’s misuse of confidential information, they can bring a claim for damages. It should be borne in mind that establishing financial loss is not always a simple thing.

If the employment contract contains a confidentiality clause and restrictions on activity by employees following their departure from the company, this will boost the options that an employer can consider in the event that confidential information is misused. This is particularly the case if a former employee has carried out the misuse.

There is sometimes a problem with the return of company property and information sources held by an employee, particularly if that employee left the company abruptly. An express clause should be included in the contract of employment to ensure that everything held by the employee that relates to (or is owned by) the company is returned before the employee leaves the premises for good.

If the employer breaches the employment contract, the law will consider that the employee is released from any obligations regarding contractual confidentiality or restrictions on how they can behave after termination.

The employer should ensure that where information is confidential, it is marked as such, so that employees are aware of its status and how they should treat it.