7 Dec 2020

A spin off from Covid-19 has been reports of the anecdotal trend of employees’ stealing their employer’s confidential information.

Protecting confidential information and trade secrets is integral to a business’s success. There is an obvious risk to your business if competitors find out what pricing agreements you have in place or how much you pay your star designers. It is therefore a priority to protect key information from being disclosed to competitors.

However, since employees have been working from home due to Covid-19, employers have experienced an increase in unauthorised disclosure of company confidential information by departing or disgruntled employees.

Whether the cause of this trend is a feeling of reduced loyalty and accountability to their employer since not being physically present in the office, or a weakened ability to police the misuse of information remotely, it is important for employers to know how to mitigate the risk of unauthorised disclosure.

What information is protected?

Information which comes to an employee’s knowledge and which may be referred to as confidential information can fall into one of the following categories:

  1. General skill and knowledge (category one)
  2. Confidential information (category two)
  3. Trade secrets (category three)

Employees have an implied duty to keep this information confidential during their employment.

After termination of employment – and less widely known – employees continue to be subject to an implied duty to keep ‘trade secrets’ confidential. A ‘trade secret’ is a specific form of confidential information which:

  1. is commercially valuable;
  2. is treated as secret; and
  3. gives the owner a competitive advantage.

The recipe for Coca Cola is an obvious trade secret, but it could also include the materials in the Nike 1:59 marathon shoe or a secret formula for pricing products.

Do employers need to protect confidential information in their employment contracts?

The duty of confidentiality is implied in absence of an employment contract, but the prudent employer will not rely solely on the implied duty.

Express obligations which restrict a former employee from disclosing trade secrets should be included in the employment contract. The key, which many employers fall short of, is ensuring confidentiality clauses are soundly drafted.

In a recent court case, a confidentiality clause which was too broad was ruled unenforceable. The judge in that case emphasised the fact that “mere confidential information” and a widely drafted confidentiality clause, would not effectively protect important information from being disclosed post-termination. The entire confidentiality clause was unenforceable because:

  • the definition of “confidential information” was too vague; and
  • the clause continued indefinitely.

This judgment highlights that the courts will generally only allow employers to protect the most important, truly confidential information.

These outcomes serve as stark reminders for employers that confidentiality clauses must be tailored to the specific needs of the business in order for them to be enforceable post-termination.

Practical steps

With employees working from home for the foreseeable future and case law showing an reluctance to accept woolly contractual provisions, practical steps should be taken to combat the risk of unauthorised disclosure of confidential information and to ensure valuable information is best protected.

Employers should follow our top five tips.

  1. Contracts and policies
    • Draft tight confidentiality provisions (following the principles of the above judgment) into (preferably) all or (at least) key employees’ contracts following proper consideration and legal advice.
    • Ensure policies regarding the use of confidential information are clear and accessible.
  2. Training and education
    • Educate employees about their confidentiality obligations and remind them of their obligations despite the home-working situation.
    • Conduct appropriate training on the increased risks to confidential information when working from home.
  3. Labelling and record keeping
    • Make sure sensitive documents are labelled “confidential” and “not for external disclosure”.
    • Identify any confidential information and trade secrets and keep a record of who has control and access to such information.
    • Conduct an audit and short risk assessment of the confidential information the employee has had access to as part of the exit procedure.
  4. Monitor usage
    • Use technology to alert you to large downloads, an increase in emails to personal accounts or voluminous printing. These are often signs that confidential information is walking out of the door!
    • Where there may be a genuine concern that an employee will make an unauthorised disclosure of confidential information or trade secrets, monitor or block access to documents and IT systems to reduce the risk of any unauthorised copying or distributing.
  5. Remind leavers
    • On termination reiterate that confidentiality obligations remain owed by the employee to the employer they are leaving.
    • Ask departing employees to confirm in writing that they have returned all company property, including company phones and laptops which may hold confidential information.

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