Can your employees keep a secret? Protecting confidential information and trade secrets during the pandemic

Covid-19 continues to present unprecedented challenges for businesses. A challenge less widely-reported, but worrying for employers nonetheless, is the anecdotal trend of employees’ breaching their duty of confidentiality. 

This duty will usually require employees not to share or use any confidential information or trade secrets belonging to their employer, except as strictly necessary to do their job.  It may be written into the employment contract, although the absence of any express confidentiality clauses will not mean that employees are free to divulge any secrets or sensitive information which they come across whilst doing their job.  

Risks presented by the pandemic    

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

However, for the past nine months, employees have been working from home due to Covid-19.  During this time, 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 (due to a lack of physical presence 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. 

Our view is that confidentiality breaches are another key risk for HR which is heightened by the remote working conditions which will be in place for the next few months, in addition to potential health and safety issues and employee fraud (which we discuss here).

This article examines how the law protects confidential information and offers practical tips for employers seeking to safeguard their valuable information against misuse. 

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 of this information confidential during their employment.

After termination of employment, employees continue to be subject to implied duty to keep trade secrets (the third category) confidential. The implied duty may also cover some confidential information (category 2) if it is akin to a trade secret but this will be unlikely to confer sufficient protection on most employers, who will therefore want to add express confidentiality terms in the employment contract.” 

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 used to manufacture the Nike 1:59 marathon shoe or a pricing formula for charging clients or customers for particular services.

However, once they have left employment, employees can use their general skill and knowledge, and other types of confidential information not amounting to trade secrets for the purpose of a new job, including for the benefit of a competitor.  

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

The duty of confidentiality is implied in the 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: many are broad and open-ended, which is usually to try and maximise the chance of enforcing the confidentiality duties in court.

However, in the recent case of P14 Medical Ltd v Mahon the court refused (at an interim hearing) to enforce a confidentiality clause against an employee because the clause was too broad in scope.  The judge emphasised the fact that “mere confidential information” and a widely drafted confidentiality clause would not effectively protect important information from being disclosed by an employee after the employment has ended.

The entire confidentiality clause was unenforceable because the definition of “confidential information” was too broad: it was drafted in the usual “non-exhaustive” way by referencing all information for the time being confidential which belonged to the employer, “including, without limitation, technical data and know-how relating to the business of the Company”.  This was too vague to be enforced, particularly because the clause was expressed to continue indefinitely.  

The court demonstrated that it will generally only allow employers to protect the most important, truly confidential information (which is more akin to a trade secret than simple know-how).  There are also some circumstances in which highly confidential personal (and not just commercial) information can be protected where an employee has access to this; such as where the employee works for a celebrity.  Other “mere” confidential information may be used by an employee immediately after his/her employment has terminated. 

These outcomes serve as stark reminders for employers that confidentiality clauses must be tailored to the specific needs of the business, otherwise there is a strong prospect that they will not be enforceable after termination of employment. 

The issue of enforcing employment contracts after termination of employment has also recently arisen in the context of potential new legislation: the UK Government launched a consultation earlier this month on non-compete clauses in employment contracts, asking whether they should be outlawed or only enforceable when compensation is provided during the period in which the restrictions apply.  The overall aim is to encourage a flexible and dynamic labour market and to increase competition in order to drive economic recovery following the pandemic.  We will be monitoring developments closely. 

Ten practical steps to protect your business

With employees working from home for the foreseeable future, and with recent cases showing a reluctance to enforce overly broad contractual confidentiality obligations, employers should take practical steps to combat the risk of unauthorised disclosure of confidential information and to ensure valuable information is best protected.

We suggest such steps include:

1. drafting bespoke confidentiality clauses (following the principles of P14 Medical) in employees’ contracts following proper consideration and legal advice
2. ensuring policies regarding the use of confidential information are clear and accessible
3. educating employees about their confidentiality obligations and reminding them that their obligations continue despite their home-working situation
4. conducting appropriate training on the increased risks to confidential information when working from home
5. making sure sensitive documents are labelled “confidential” and “not for external disclosure”
6. identifying any confidential information and trade secrets and keep a record of who has control and access to such information, and where appropriate conducting an audit and short risk assessment of the confidential information the employee has had access to as part of the firm’s employee departure processes
7. using 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 at risk of walking out of the door
8. monitoring or blocking access to documents and IT systems to reduce the risk any unauthorised copying or distributing where a genuine concern has arisen that an employee will make an unauthorised disclosure
9. reiterating confidentiality obligations owed to the employee’s former employer on termination
10. asking departing employees to confirm in writing that they have returned all company property (including company phones and laptops which may hold confidential information) and including a term in the employment contract which requires this.

Our specialist employment and dispute lawyers have years of experience helping our clients prevent confidential information and trade secrets and to enforce confidentiality and post-termination restrictions.  If you would like to discuss the issues discussed in this article or would like specific advice, please contact Aron Pope or your usual Fox Williams contact.

HRLaw training 2021

This year’s virtual HRLaw training programme includes a session on the topic of termination of employment: protecting reputations and confidential information.

The course takes place on Tuesday 18th May 2021 and will be particularly useful for HR professionals and managers who are involved with corporate restructuring and terminating individuals’ employment. 

For more information and details on how to book please click here.