It is common practice for employers to include post-termination restrictive covenants in their employment contracts to protect their Confidential Information and Intellectual Property when employees leave the business. However, it is also common to see issues surrounding Confidential Information crop up in contentious proceedings related to the employer-employee relationship. Employers can apply for some forms of relief in civil proceedings if they discover that an employee or former employee has retained and misused their business’s Confidential Information.
What is confidential information?
There are three different categories of Confidential Information:
| Category | Class of Information | Definition | Example |
| Category 1 | Trivia | Obvious, fairly simple and benign information | Common knowledge |
| Category 2 | Know How | Information that is important to a company and more than trivia. It is not necessarily very complex once it has been learned. | A specific manufacturing process |
| Category 3 | Trade Secrets | Commercially valuable business information that provides a company with a competitive edge. | A secret recipe |
Category 1 data, Trivia, cannot be protected. However, information that is trivial on its own may amount to a Trade Secret when compiled with other information.
Category 2 data, Know How, can be protected during employment, and in some cases following employment, where there is a legitimate business interest for the purpose of enforcing a restrictive covenant. It is not possible to prevent an employee using Category 2 data information following the expiry of a restrictive covenant.
Category 3 data, Trade Secrets, can be protected indefinitely and internationally. They are generally only known to a limited group of people. Trade Secrets can be sold or licensed.
A Court would always apply a multi-factorial test, when deciding which category a piece of information might fall in to:
- What is the nature of the information?
- How has the information been stored by the employer?
- How commercially valuable is the information to the company?
- How many people within an organisation have access to the information?
- Could we expect an employee to retain the information post-employment?
Trade Secrets can sometimes be retained in the head of an employee (Johnson & Bloy (Holdings) Ltd v Wolstenholme Rink Plc [1987]), and compilations of Category 1 and 2 data may amount to a Trade Secret (Saltman Engineering Co. Ltd v Campbell Engineering Co. Ltd [1963]).
A Court, when asked to look at Confidential Information and any use of it, will balance the employer’s legitimate interests in protecting its Confidential Information with the employee’s right to work for a competitor, and allowing other businesses to compete effectively and fairly.
Employee duties
There are a number of duties which an employer could rely on under circumstances in which they believe their Confidential Information has been improperly retained or used.
Equitable duty of confidence: this is considered under a three-limb test from Coco v A. N. Clark (Engineers) Ltd [1968].
- The relevant information must have the necessary quality of confidence;
- The relevant information must have been acquired under an obligation of confidence (whether imposed by contract, implied by the circumstances of disclosure or arising from the special relationship between parties concerned); and
- There is a misuse of the relevant information to the employer’s detriment.
Implied contractual duties is an alternative to the above equitable duty. The implied duty generally relied on is the implied terms of confidence and fidelity. The legal basis changes when bringing a claim for implied contractual duties, for example, the employer would have to apply for relief under the doctrine of ‘clean hands’ (i.e. the employer must have acted ethically, legally and in good faith regarding the same matter).
Express contractual duties may also be relied upon, but these can be difficult to adequately draft into a contract. Defining the scope of an employer’s Trade Secrets or Confidential Information is risky for employers. These often evolve over time and can quickly become outdated. If the drafting of express contractual duties is too broad, then the drafting might be in constraint of fair trade. If express contractual duties are introduced to an employee during the course of their employment, consideration would also need to be provided.
Other potential sources of duties may arise from fiduciary or directors’ duties, the application of Intellectual Property Database Rights or Trade Secrets Regulations.
Common issues in employment litigation
The common Confidential Information battlegrounds seen in Employment litigation are:
- Self-help disclosure: Where an employee helps themselves to copies of documents or forwards them to a personal email account. This is often in anticipation of constructive dismissal claims, where the employee claims they need those documents to protect themselves. The appropriate route for an employee to access those documents would be during the disclosure phase of the litigation process. Alternatively, depending on the content of the documents, self-help disclosure may even indicate an employee’s intention to prepare to go into competition with the employer.
- Client lists: the retention of the employer’s client lists and their contact details. This might represent an employee’s intention to contact those clients following the termination of employment and solicit them away from the employer’s business, which is naturally to the employer’s detriment.
- Stealing the master plan: An employee taking away the employer’s central vision or strategy, with the intention of replicating that within their own business model.
Criminal offences
There are potential criminal offences associated with the misuse of Confidential Information under the Data Protection Act 2018. These might stem from the employee knowingly or recklessly retaining personal data without the consent of the data controller, which is often linked to the retention of client lists and details. There are also potential offences linked to hacking and the re-identification of anonymised personal data without the consent of the data controller. Should a criminal investigation commence, a court may grant a temporary stay on related civil proceedings. However, the courts will not grant indefinite stays, causing a delay over which the civil claimants have no control. Criminal and civil proceedings can run parallel to one another.
Relief
An employer can make an application to court for interim injunctive relief in relation to the misuse of the Confidential Information, however, the courts are usually cautious when considering such orders. If they pass an order at all, they will typically only want to do enough to hold the current position pending a trial.
In exceptional cases, employers can make without notice (ex-parte) injunctive applications, where they ask that a court grants an order without the opposing party being present or notified. These are exceptional because it is a fundamental principle of justice that an order should not be made against a party without giving them an opportunity to be heard. Without notice injunctions will typically only be granted where giving notice would enable the former employee (respondent) to take steps to destroy evidence or defeat the purpose of the injunction, or where time is so limited that there is no way to give notice before the injunction is required to prevent the threatened wrongful act.
Before applying to a court for relief, it is important that an employer can demonstrate concrete evidence that Confidential Information exists, that it is in the respondent’s possession and that it is being misused. A court will not provide relief based on an employer’s anxiety or based on what an employer thinks the former employee might or is even likely to do.
There is a further issue that injunctive relief may not be wholly adequate where confidentiality is concerned, because it is impossible to fully recall or retract Confidential Information which may have been put into the public sphere.
Injunctive relief options include:
- Delivery up: this is predicated on the compliance of the respondent. They must physically return all Confidential Information, copies and related property of the employer to a specified place, by a specified time. Whilst this is superficially a relatively simple order, it can still be considered onerous by the court.
- Imaging: this is an order for the respondent to provide immediate access to digital devices and cloud accounts. An external and independent expert will then complete a review of the digital devices and secure the Confidential Information. This injunction is relevant where compliance with delivery up is unlikely, and there is low trust with the respondent.
- Search Orders: a more invasive form of order – a search order includes the physical search of a respondent’s work premises and/or home under the management of a supervising solicitor. They are generally made on a without notice basis to preserve the Confidential Information and property that is being sought, thereby preventing a respondent from destroying it.
The court retains the discretion to refuse an injunction. For example, where Confidential Information has been made publicly available and an injunction would subsequently be futile, the court may consider that damages are a more appropriate remedy. Alternatively, the court may issue an injunction subject to carve-outs such as permission for a respondent to disclose certain information for whistleblowing purposes.
Ultimately, for injunctive relief, the court will thoroughly investigate and test any application made and will protect Confidential Information where misuse can be evidenced. Any granted injunction may even encourage and leverage a settlement in the employer’s favour, on the basis that the courts are careful in their investigation before granting injunctive relief.
Should you need assistance protecting your business’s Confidential Information, or advice if you believe it may have been misused, Nelson’s Employment and Commercial Disputes teams would be happy to assist.
How can we help?
Alice Rose is an Associate in our expert Employment Law team.
She has a background and particular interest in the Education sector, including first tier tribunals and regulatory disputes. Alice provides advice on a wide range of contentious and non-contentious matters including unfair and constructive dismissal, discrimination claims, corporate due diligence and support, as well as general employment support including contracts, policy and procedural reviews and settlement agreements.
For more information or to discuss your specific circumstances, please call 0800 024 1976 or contact us via our our online enquiry form.
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