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Misuse of Confidential Information - How Can You Protect Your Business?

on Friday, 27 July 2018.

What are the steps businesses should take to effectively reduce the risk of employees misusing confidential information?

Your Employees' Duties - What Does the Law Say?

Employees owe a number of contractual duties to their employers, which include:

    • to act honestly
    • to act with fidelity and loyalty in respect of the employer's business
    • not to do anything that would damage the employer's interests
    • not to place themselves in a conflict of interest
    • not to disclose confidential information for their personal benefit

Confidential information is essentially trade secrets which are the property of the employer. It is distinct from the skills, experience, and know-how acquired by the employee as part of their role. Trade secrets include customer lists, trading details, pricing, formulas, methods of construction and design features.

Employers are frequently exposed to dishonest practices by existing and former employees which include theft, unauthorised copying, economic espionage, and unauthorised disclosure to third parties. Increased outsourcing, longer supply chains, and the increased use of technology contribute to these risks.

Restrictive Covenants

Occasionally employees will be bound by restrictive covenants within their contract of employment which may include not competing with the employer for an agreed period after the employment ends. The enforceability of the covenant depends upon whether the employer has demonstrated a legitimate business interest to protect, and whether the scope and duration of the restriction is reasonable.

If the covenants are properly drafted, any breach by a departing employee can be enforced by way of injunction in the High Court.

In the recently reported case of Dyson Technologies v Pellerey (2016) EWCA Civ 87, the Court of Appeal upheld the enforcement of a non-compete covenant preventing the employee, an engineer, from joining a competitor, Tesla, for 12 months. In this case, the employee was exposed to highly confidential information surrounding product design on a daily basis. In addition, he was contractually obliged to notify his employer of an intention to approach a competitor for the purposes of obtaining employment and had failed to do.

As an employer, you should therefore consider including obligations in your employment contracts and make sure that any restrictions relating to confidential information possessed by departing employees require them to notify you of any intention to seek employment from a competitor. This should also apply if they are setting up in business on their own.

Without covenants, you will have to rely upon the general law to protect the misuse of your confidential information. Proceedings will have to be brought in respect of breaches of confidence.

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Do you currently have restrictive covenants in place?

Towards More Robust Protection for Businesses?

However, employers may soon be assisted by new legislation. The Trade Secrets (Enforcement) Regulations 2018 is aimed at the protection of undisclosed know how, trade secrets and business information. It was required to be adopted into domestic law by 9 June 2018 but has not yet been implemented due to the busy post Brexit legislation.

The draft regulations are designed to interact with the existing laws. They require an employer to identify the confidential information to benefit from protection from the regulations. Confidential information can be defined by the courts' own initiative and is generally defined as being secret, with a commercial value and readily accessible to persons who normally deal with the information in question.

Where a court identifies an alleged trade secret, the defendants to proceedings who will normally be employees or former employees must not disclose such information. The court will take the necessary steps to support the obligation of non-disclosure.

If an employee who is in possession of confidential information decides to leave their employment and joins a competitor (assuming there is no breach of any express restriction within the employment contract), they will be subject to the existing general law relating to the non-disclosure of confidential information to any third party, and risk the threat of injunction proceedings for any breach.

For help reviewing your employment contracts or to find out more, please contact Michael Delaney, in our Employment Law team, on 01923 919 316.