Employers place great importance on what they believe to be internal “confidential” information which, if obtained by a competitor, could severely damage their business. Things such as customer lists, suppliers, customer demands and pricing are examples of such information.
Are employers doing enough in reality to protect that information or are they simply relying on the fact that, in their own eyes, the information is “confidential” and therefore protected?
This case involved a dispute between an employer, Crowson, and two ex-employees who had copied and retained various “confidential” information and documents belonging to Crowson and then set up a competing business. The information included customer contact details, profit margins and sales figures.
Crowson sued the ex-employees relying on breach of confidence, breach of duty of fidelity and, importantly, infringement of its database right in the information used.
Confidential Information
The defendants’ employment contracts contained neither any restrictive covenants regarding use of confidential information nor any non-compete clauses.
Crowson was therefore left to argue that the ex-employees were subject to an implied duty of confidentiality. Lord Justice Peter Smith reiterated the principles relating to this implied duty as set out in the case of Faccenda Chicken Ltd v Fowler & Sons by stating that:
“Former employees are entitled to go about their business in competition with their former employers (absent restrictive covenants) using such expertise and information that they have acquired during the course of their employment. They cannot be barred out from using their own accumulated skills and knowledge. Equally, however, the Court has to be satisfied that ex-employees do not go beyond using their own accumulated personal skills but instead decide to help themselves illegitimately to the ex-employer’s material as a short cut.”
Applying this analysis, the judge held that none of the information claimed by Crowson to be confidential was in fact so. He held that:
“If the information is in the public domain it is capable of being used even if it is derived from the Claimant’s documents … all of the information alleged to be confidential was either in the public domain or was easily discoverable by [the Defendants] … or was in their heads.”
This was fatal to Crowson’s claim for breach of confidence and thus the defendants were free to use the information obtained subject to that use being legitimate. However, what the judge did not accept was that the defendants had made legitimate use of the information, confidential or not, and he found that both defendants had acted in breach of their duty of fidelity to Crowson by taking and retaining the documents.
The effect that this has is on the relief available to claimants. If the information is not confidential, it is much harder, or impossible, to obtain injunctive relief preventing further use of that information by defendants. Whilst they can be ordered to return any hard copy documents to the claimant, they cannot be prevented from further using the information “if it can be shown to have been part of their memory”. Since the claimant had failed to show any loss, the judge invited the parties to consider whether “the appropriate relief will be to grant damages in lieu of injunction measured by reference to what would be a reasonable price the Defendants ought to pay for using the Claimant’s documents as a shortcut to setting up their business.”
On the other hand, if the information is confidential, and the requirements of misuse of that confidential information are met, then injunctive relief will usually be granted, thereby preventing any further damage to the claimant’s business.
Database Rights
Where Crowson was successful was in showing that the defendants had infringed its database rights by substantial extraction of information from its database of information onto their own computer system. This may prove to be a useful tool to claimants where ex-employees have copied and retained information after their employment has ended, and as an alternative to claiming that the information is confidential in nature.
Practical Points
So, practically, what should employers do to prevent their ex-employees from using their information for setting up competing businesses?
- Ensure that each employee’s employment contract, particularly those with senior employees, contain enforceable restrictive covenants in respect of the use of confidential information and non competition by ex-employees.
- Ensure that information which they consider is confidential and could potentially be damaging if used by ex-employees, or indeed by other third parties, is not put into the public domain in any way at all.
- Ensure that employment contracts contain sufficient intellectual property clauses so that the employer retains all rights in any databases used by employees in the course of employment, including email contact lists.
- Ensure that the Company Handbook, if it contains separate provisions regarding confidential information, non compete clauses or intellectual property clauses, is incorporated as part of the employment contracts and a copy given to each employee.