Safeguarding confidential information

Dear hrlaw Auntie

I am the HR Manager of a PR company based in the West End. As with any commercial organisation, our contacts and clients are the lifeblood of our business.

One of our senior employees has resigned recently and he is currently working through his 3 month notice period. He is leaving us to join one of our main competitors. I want to ensure that he does not use any of our confidential information (in particular, our list of clients and contacts) for the benefit of his new employer.

We have an email and internet monitoring policy, and our IT department has just informed me that this employee has emailed our business plan, client list and pricing information to his personal email address. Is there anything we can do to protect our interests given that we do not have a confidentiality provision in our standard employment contracts?

Yours sincerely

Concerned About Confidential Information

Dear Concerned

All is not lost. Employees are bound by the implied duty of mutual trust and confidence which exists between every employer and employee during the period of their employment. Employers often attempt to enforce the duty of mutual trust and confidence in order to protect their confidential information, client connections and to maintain the stability of their work force.

The employee in question will only remain bound by the duty of mutual trust and confidence until his notice period expires. Once the employment relationship comes to an end, there will remain only a limited obligation on that employee not to use or disclose trade secrets or information which is so highly confidential that it effectively amounts to a trade secret. Another reason why it is preferable to have an express confidentiality provision in your standard employment contract is that you can define exactly what constitutes “confidential information”, and the duty of confidentiality can be expressed to apply post-termination.

Garden leave

If you have a garden leave provision in your contract, then I would strongly recommend that you place the employee in question on garden leave during the remainder of his notice period. Garden leave clauses usually enable employers to require an employee to remain at home during all or part of their notice period and the employer can prevent them during this period from doing any work for their employer and/or from contacting clients or customers and employees of the employer, except in a strictly social context. Employers often choose to put senior employees on garden leave who have access to confidential information which they could then take with them to a competitor once their employment ends. Whilst on garden leave, the employee continues to receive his salary and benefits. The implied duty of mutual trust and confidence should continue in full force during the period of garden leave, because the employee remains in the employer’s employment during that period. However, there have been a couple of recent cases which have cast some doubt on whether employees remain bound by the duty of mutual trust and confidence whilst on garden leave. I would therefore advise you to address this uncertainty by including an express provision in your standard garden leave clause which prevents employees from commencing any alternative employment during the garden leave period, and which makes it clear that employees remain bound by both their express and implied contractual duties (including their duty of mutual trust and confidence) during the period of garden leave.

Faccenda Chicken Ltd v. Fowler

In the key case of Faccenda Chicken Limited v Fowler, the Court of Appeal upheld the following distinction between 2 different categories of information:

* Information which an employee must treat as confidential, either because the employer expressly states that it is confidential or it is obviously confidential by character, but which, once learned, necessarily remains in the employee’s head and becomes part of his skill and knowledge; and

* Trade secrets and other information of a sufficiently high degree of confidentiality as to amount to a trade secret.

Information in the first category will be protected from mis-use whilst the employment relationship subsists. However, once the employment ends, the employee will be free to use and disclose it. Any information falling into the second category will be protected from use or disclosure by the former employee, post-termination of his employment.

In the Faccenda Chicken case, the Court of Appeal emphasised that the category a piece of information falls into will depend on its own facts and circumstances. However, the Court set out several useful factors to consider, which include the following:

1. The nature of employment – if confidential information is habitually handled in the course of employment, a high obligation of confidentiality may be imposed, as an employee can be expected to realise its sensitive nature to a greater extent than an employee who only rarely handles such information.

2. The nature of the information – secret processes of manufacture obviously amount to trade secrets, but innumerable other pieces of information may also be trade secrets, even though their secrecy may be short lived. The fact that information is restricted to a number of individuals may be relevant.

3. Whether the employer impressed on the employee the confidential nature of the information.

4. Whether the relevant information can be easily isolated from other information which the employee is free to use and disclose.

Investigation and disciplinary meeting

As the employee in question is still employed by your company, he remains bound by the duty of mutual trust and confidence. If he is found guilty of having sent details of customers and contacts, the company business plan and pricing information to his home email address for the purposes of forwarding it to his new employer or using it once he joins his new employer, then this would constitute a breach of the duty of mutual trust and confidence. However, you will need to investigate the matter to see whether for example, he forwarded the information to his home email address in order to work from home. Is it, for example, common practice for employees to send work to their home email address to complete it in the evenings or at the weekend?

You may want to consider suspending the employee on full pay pending an investigation if you have the contractual right to do so. If there is sufficient evidence to suggest that the employee may have acted in breach of confidence then you should require the employee in question to attend a disciplinary meeting. You will need to write to the employee to provide him with details of the meeting. The letter should specify the allegations against him and it should notify him of his right to be accompanied by a trade union representative or a colleague of his choice. It should also include copies of all the information and evidence you have obtained in support of the allegations against him.

If, at the disciplinary hearing, the employee admits taking the information in question, then the first step you should take to safeguard your information is to obtain a written undertaking from him that he will, with immediate effect, return all the information he has forwarded to his personal email address, confirmation that he has not retained any copies of the information and a further undertaking that he will permanently delete the information from his computer. It may be preferable to have your IT department check his PC to ensure that such information has been deleted and that he has not forwarded it to his new employer.

Remedies

The following remedies may be sought by you if there has been a breach of the duty of mutual trust and confidence.

a) Damages

Whilst you would be able to claim damages to put you in the position you would have been in but for the breach of contract, the amount of damages you would be claiming could be difficult to quantify. It may also be open to you to proceed against your employee’s new employer if they have procured the employee to breach the implied duty of trust and confidence by obtaining the confidential information. In relation to damages, if an employee has misused its employer’s confidential information, it is a question of fact whether the employee has gained the employer’s customers as a result of that misuse of confidential information. Theft of confidential information does not create an irrebuttable presumption that any business gained by the employee resulted from the wrongful use of that confidential information, such that the employee would be liable in damages.

b) Dismissal

An employer can dismiss an employee who is in breach of his implied duty of mutual trust and confidence. However, in order to prevent a finding of unfair dismissal, where an employee has the requisite period of service to be eligible to bring an unfair dismissal claim (i.e. one year’s continuous employment), the employer must show that it had a potentially fair reason for dismissing the employee, for example, misconduct. The employer must also act reasonably in treating that reason as a sufficient reason to dismiss the employee and it must have followed a fair procedure in doing so. Regard should be had to the new statutory disciplinary procedures which should be followed in order to prevent a finding of automatically unfair dismissal and a potential uplift in any compensation that is awarded of between 10% and 50%.

c) Injunction

Injunctions can be sought as a final remedy at trial. However, they are more usually obtained on an interim basis where the employer urgently needs to protect its business. In most cases, involving the implied duty of mutual trust and confidence, the Court will be asked to restrain the use of the employer’s confidential information. The parties seeking the injunction will have to give a cross- undertaking in damages, promising to compensate the party constrained by the injunction for any loss it suffers if the Court concludes at trial that relief should not have been granted. You will need to establish that you have a good arguable claim to the right you seek to protect and that there is a serious issue to be tried. In the context of confidential information, the question is whether the information that the employer is entitled to protect would be lost without the aid of an injunction. The Court will then consider the balance of convenience, asking whether damages would provide an adequate remedy and whether the granting of an injunction would do more harm than good. To succeed in obtaining an injunction preventing the use of confidential information, you will need to identify the information you are entitled to protect.

d) Search Order

If you suspect that the employee may try to destroy evidence of his misuse of confidential information, then you could apply for a search order allowing your employee’s residential premises or his new business address to be searched for evidence so that it can be seized. This is a draconian order and is subject to various safeguards.

e) Springboard Injunction

In certain circumstances, a springboard injunction will be ordered to prevent the use of information that is no longer confidential. If the employee has gained a head start through the misuse of confidential information during employment, he will be prevented from using it for a limited period, even though that information has fallen into the public domain.

f) Account of profits

An account of profits is usually only ordered if a fiduciary has acted in breach of its fiduciary duties. It is not usually ordered where an employee has acted in breach of his duty of good faith. However, the House of Lords has recently held that in exceptional circumstances, the courts may order an account of profits for a breach of contract, even where the innocent party has suffered no loss and the wrong-doer is not in breach of a fiduciary obligation. That case concerned a former member of the intelligence services who received profits when he published his autobiography in breach of a non-disclosure clause in his employment contract. The case was specific to its own particular facts and it is therefore unlikely that an account of profits would be awarded in your case.