Most businesses have important confidential information which is invaluable to them. Protecting this information is essential for making sure it maintains its value and isn’t used by anyone else, either for their own benefit or that of a competitor.
It is common for many employees to have access to confidential information as part of their role and for some it can actually be required in order for them to perform it. It also stands to reason that the more senior an employee is, the greater the amount of confidential information they will have access to, and, that it may also be more valuable as a result.
Employees are likely to be a business’ most important asset, contributing significantly to its success. As such, there can be competition to recruit the right individuals, and employees will often end up leaving to join key competitors, whether they are poached or take the step themselves. Employees can also make the decision that it is time to move on and apply their trade for their own benefit, by setting up on their own.
Businesses can’t prevent these things from happening and the worry to many, is that employees may take and use confidential information or go on to work in direct competition.
During the employment relationship there is an implied duty that employees will conduct themselves with fidelity and good faith. Among other things, this involves a contractual obligation to respect the confidentiality of their employer’s commercial and business information. This duty is implied into all contracts of employment and employment relationships, no matter how senior an employee.
A businesses’ confidential information is usually defined within its policies or employment contracts, but broadly speaking it will cover information that relates to the business which is not otherwise available to the public, and therefore not considered to be within the public domain. Information which is readily available to the public cannot be considered to be confidential and therefore cannot be protected. As a practical consideration, it is always important to think about what information needs to be protected and to make sure that it maintains its confidentiality. For instance, a list of clients published on a website would not be confidential and therefore could not be protected.
What confidential information looks like to one business can be very different to another. However, some (non-exhaustive) examples of the most common types of confidential information are:
- Client lists and business contacts
- Pricing information
- Business Plans/Proposals
- Intellectual Property and Trade Secrets
- Technical data and Know-How
Most of the time confidential information will be recorded in some form of documentary evidence and be in either a hard copy or digital format. However, it can also relate to other information which is not recorded in that way.
Confidential information can be protected for as long as the information retains its confidential status. This could, in theory, be forever but there are certain barriers to this which make it difficult for this theory to be proved. The reality is that in most instances the confidentiality of a certain document will fade over time. For example, is a 10 year old business plan still confidential to a business and does it still need protecting? It is unlikely, but whether something retains it confidentiality status is fact specific.
Protecting confidential information
Usually a business will have a policy on confidential information, build it into its employment contracts, or both. Even though certain confidentiality obligations are implied into the contract of employment, it would be unwise for an employer to rely solely on implied terms. Having express terms enables an employer to not only define what confidential information is, but also clearly set out what an employee (or other individual) is not allowed to do. This will generally be that an employee is prohibited from using or disclosing confidential information, both during and after the termination of their employment. However, this will of course be subject to some mandatory exceptions such as an employee’s ability to use confidential information for protected disclosures or as required by law.
It is also important to note that only trade secrets continue to be protected by the implied duty of confidentiality after termination of employment. Having express confidentiality provisions will enable a business to ensure its confidential information continues to be protected post termination.
What tends to go hand in hand with confidentiality obligations, are other post-termination restrictive covenants which, when used in conjunction with these, seek to maximise the protection for a business.
The most common restrictive covenants are non-competition (often referred to as ‘non-compete’) clauses and non-solicitation clauses. These are designed to prevent an employee leaving and either working for a competitor or setting up on their own, in competition, where confidential information may be used for a competitive advantage, and preventing them from pro-actively going after clients or customers.
Whereas confidential information can potentially be protected indefinitely, the same cannot be said of restrictive covenants contained within employment contracts. To be enforceable, they must be reasonable and go no further than is necessary to protect a legitimate business interest. That interest could for instance be, confidential information.
What is necessary to protect a legitimate business interest from one employee to the next may differ, and the more senior a role is, the more protection you might be afforded.
A relatively junior employee will still have access to confidential information, as will a senior manager. However, as their respective exposure and access to confidential information will inevitably differ, the type and length of protection you might be able to enforce could differ significantly. For the most senior employees, it may be possible to have an enforceable clause preventing them from competing with you for 12 months, whereas for someone more junior, it would likely be unreasonable and therefore unenforceable.
It is therefore important to fully consider the wording of both confidentiality terms and any restrictive covenants that you wish to use within your employment contracts. Restrictive covenants can be effective in protecting your business but they need to be enforceable. The best way to do that, is to seek legal advice, so the necessary wording is used and they are tailored to a particular individual and your business. It will also be a good idea to regularly review the wording within your employment contracts to make sure restrictive covenants remain current and suited to the needs of the business. The Employment Team at Sintons regularly advise clients on relevant wording for covenants, ensuring these remains current, enforceable and tailored for a business’ needs.
What to do when things go wrong…
You have just found out that an employee, who recently handed in their notice, is going to join one of your competitors in a very similar role to the one they are carrying out for you. This is concerning as they have access to confidential information and you have a suspicion that they will seek to use this within their new role. After carrying out an internal investigation, it comes to light that the employee has emailed details of your clients and pricing to their personal email account. So, what should you do?
The best advice that can be given to an employer is to act fast in these situations. Time is of the essence, and you have to be seen to be acting promptly if you want to protect your business.
Taking swift legal action could, in this scenario, entitle you to obtain an interim injunction against the employee to prevent them from using and disclosing the confidential information and for its delivery up/return. Depending on whether other restrictive covenants are applicable, you may also be able to prevent them from working for your competition for a set period of time as provided for within their employment contact, providing any such restriction is enforceable.
The reality is that once discoveries of this nature have been made, it is best to seek legal advice to assist you in how best to protect your business. Sintons’ Dispute Resolution Team works closely with the Employment Team in matters such as these. Obtaining an interim injunction often requires a lot of work in a short space of time and as well as being time consuming, they can be expensive too. However, if the risk of loss or harm by an ex-employee is significant, then it could be the best way to proceed. The alternative of doing nothing, is not likely to prevent an individual from continuing to use confidential information or from working for a competitor.
The first step is to work out what an individual has done, in so far as you are able to, and review the relevant contracts in place to decide whether they have or will be breached, in addition to considering the equitable principles of confidentiality. Prompt action thereafter and the threat of legal proceedings may result in undertakings being provided to you by the individual, which would potentially prevent the need to seek a formal injunction.
The key message here is that if you discover that an employee or ex-employee is seeking to misuse confidential information or work in competition with you, then you need to decide quickly what action you want to take.
Considerations for the future…
The position on business protection and in particular, restrictive covenants is evolving. As reported within a recent Employment Law Bulletin, there are Government proposals afoot to potentially limit, by statute, non-compete restrictive covenant clauses.
The thinking behind this is that it will increase flexibility for employees changing jobs within the same sector and in setting up competing businesses. This may sound pessimistic for employers but if laws are introduced, then it will be important to fully analyse how this new legislation may affect your business.
Until then, it is business (protection) as usual.
If you have any questions in connection with the content of this article or employment law in general, please contact Catherine Hope in the Employment Team at firstname.lastname@example.org or on 0191 226 3801 or Adam Hutton in the Dispute Resolution Team at email@example.com or 0191 226 3134.