14 January 2008
In the employment relationship both parties become privy to information about the other but to what extent is any of it confidential, and what does this actually mean in practice? We’ve compiled a set of circumstances and cases to illustrate the duties and obligations that arise and when to keep a secret.
Both employers and employees are afforded a certain amount of protection under law against the unauthorised disclosure or use of information which has been entrusted to them by the other in circumstances which either expressly or implicitly impose an obligation of confidence. Having said that, simply defining information as "confidential" will not necessarily make it so and there has been a significant amount of case law on the subject, particularly regarding the extent of the employee’s implied duty of loyalty, which includes an obligation to respect the confidentiality of the employer's commercial and business information.
Employers may rely heavily on the implied duty to prevent employees using information gained during their employment for their own purposes, such as when going to work for a competitor or setting up in competition. However, in Faccenda Chicken Ltd v Fowler & Sons (1987), a leading precedent on the implied duty, the Court of Appeal construed that only information which amounts to a trade secret is protected both during and after employment. Mere confidential information, namely information which employees are told is confidential or by its nature is implicitly confidential, which becomes part of the employee’s skill and knowledge, is only protected during employment and not after termination. Since the Faccenda case, common law has established various pieces of information which would amount to a trade secret including in Lansing Linde Ltd v Kerr (1991) information:
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which is used in a trade or business;
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which if disclosed to a competitor would be likely to cause real or significant damage to the owner; and
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whose dissemination must have been limited by the owner or, at least, whose dissemination must not have been encouraged or permitted on a widespread basis.
The Faccenda case makes an important distinction between:
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Confidential information which is owned by the employer and which may be protected post termination; and
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Information that has become part of the employee’s general skill and knowledge, that can be said to be “carried away in his head”, which can fairly be regarded as the property of the employee to use without restraint.
To make this distinction, as well as carefully examining the information in question, the court will also consider the employee’s behaviour in taking the information.
In Roger Bullivant v Ellis (1987) Mr Ellis applied to overturn an injunction preventing him from contacting any of the three hundred and twenty five organisations whose details were contained in a card index that he had unlawfully removed from his former employer's offices. He said that this was unfair, because he was prevented from contacting organisations whose details he knew from years of working with them, or could have looked up from public sources. The Court of Appeal agreed that this would be the effect. However it held that he would not have been able to remember all of three hundred and twenty five names and that "having made deliberate and unlawful use of the plaintiff's property, he could not complain if he finds that the eye of law is unable to distinguish between those who he could, had he chose, have contacted lawfully and those he could not".
Just recently in Crowson Fabrics Ltd v Rider and others (2007) the High Court had to decide if individuals, who during their employment had copied and retained customer and supplier contact details and sales figures to use to set up and start a rival business, had acted in breach of their implied duties of confidentiality and fidelity. The Claimants argued that none of the material that they created, used or retained at the end of their employment contained any confidential information. The court accepted that all of the information was either in the public domain, was discoverable by the individuals (such as addresses and telephone numbers) or was part of their knowledge and as such they were not prevented from using it after employment ended, provided it was used in a legitimate way. However, the court went on to find that, although the duty of confidentiality had not been breached, the individuals’ use of the information had overstepped the boundaries of taking preparatory steps to set up in competition, and those "illegitimate" actions amounted to a breach of the duty of fidelity. Unfortunately, as the information was not confidential, the only remedy the employer had was for damages and the court noted that it would be difficult to identify any loss in such a situation.
As a consequence of the limited protection afforded by the implied term, prudent employers will often include an express confidentiality clause in the contract of employment, listing the types of confidential information that the employer seeks to protect. This can assist a tribunal in determining if the information in question should be classed as a trade secret and, even if they decide the information is not covered by the implied duty of confidentiality, can arguably still result in a breach of an express term of the contract.
Employers can also make use of other restrictive covenants, including non-competition clauses and non-solicitation of customers and/or enforcing a period of garden leave. These measures will keep the employee out of the market and will therefore be more effective at restraining unauthorised use or disclosure of confidential information. However, they need to be carefully drafted to ensure they are no wider than reasonably necessary to protect the employer’s confidential information, customer connections and workforce. (Members can learn more on this topic from Buddy’s factsheet on Restrictive Covenants).
Next week, in the concluding part of the article, we take a closer look at the employee’s rights under the Data Protection Act and the Public Interest Disclosure Act and the practical effect this has on day to day management activities.