UK: Employee Infidelity: What Happens When An Employee Breaches Confidence And How Might It Be Prevented?

Last Updated: 17 April 2018
Article by Terence Broderick

Employee infidelity occurs when an employee contravenes their duty of fidelity to their employer. One example of this is disclosing confidential information, such as the details of a new invention, to a competitor.

Context

In organisations where innovation and invention are part of the culture, it is very often the case that employees represent the largest risk of a prejudicial disclosure of an invention to a competitor. This is often described as a form of espionage but legal professionals may recognise the epithet “employee infidelity” as briefly described below. 

These disclosures happen because it is not possible to control what employees do for 24 hours of the day. It is, however, very possible that an employee may wander out of a company’s office and down to their competitor with details of a new invention before any protection has been secured.

Measures can be taken to prevent employees seeing commercially sensitive projects that they are not involved with, but it is not always possible to police these barriers so strictly. Additionally, it may be the employees directly involved with the projects of concern that represent the greatest risk as they are most likely to understand the value of the confidential information related to those projects to the competitor.  

Specific non-disclosure agreements may be put in place to cover specific projects, but the cost of these agreements can be prohibitive if a legal professional is to be involved every time they are to be drafted. Moreover, commercial non-disclosure agreements tend to only cover specific employees – those employees may let slip to other employees about details of the project and accidental disclosures may take place during the routine of the working day and afterwards. The employees receiving the information may not be party to the specific non-disclosure agreement or non-disclosure agreements may not be in place at all!

Confidential information

Confidential information has no definition under UK law. Rather, it was recognised in Coco v AN Clark (Engineers) Ltd [1969] RPC 41 that to benefit from protection as “confidential information”, the information must:

  • Have the necessary quality of confidence, i.e. it must be secret, identifiable and non-trivial;
  • Be communicated in circumstances imparting an obligation of confidence, whether contractual or merely through objective knowledge of its confidentiality; and
  • Be used without authorisation and to the detriment of the party communicating it.

Details of inventions, prior to filing a patent application, are generally accepted as having the quality of confidence necessary to satisfy the criteria set out above.

The criteria above sets out that confidential information must be “identifiable” – so NDAs which do not identify the confidential information concerned are of limited use. For this reason, it is recommended to draft specific NDAs for employees who are working on projects which are identified as commercially sensitive. Such NDAs should identify the confidential information in a way which will increase the chances of the confidential information benefiting from protection as such.

Employment contracts

Employees have employment contracts by law. It is established law in the UK that a confidentiality clause can be implied in an employment contract by an employee’s duty of fidelity to their employer.  

In organisations where innovation and invention are an active part of the culture of a company, they may even include an explicit clause which protects all of the confidential information imparted to the employee during their employment. 

Practical considerations

It is often not practical for an employer to define confidential information in an employment contract in a way which would enable a breach of confidence to be relied upon. A clause in the employment contract which defines confidential information as, for example, all information relating to inventions devised by the company, is unlikely to be specific enough to benefit from the definition of confidential information in Coco v AN Clark as described above. 

Even where an employee is employed to work only on a specific project where the confidential information could be defined more specifically in the employment contract, that employee is likely to come across other confidential information outside of that definition where the confidentiality clause would provide no protection.  

That is to say, it would be difficult for an employer to sue an employee for a breach of confidence unless a specific NDA is in place covering the information they have disclosed during an act of employee infidelity.

The presence of a confidentiality clause in an employment contract, either explicitly or implicitly, means that a breach of confidence could be remedied through proceedings for a breach of contract.

How may a breach of contract action be different from proceedings for a breach of confidence?

To benefit from remedies for a breach of confidence in a case where an employee has disclosed an invention to a competitor, the court will assess the facts of the case in accordance with the criteria set out in Coco v AN Clark set out above.

If the employment contract only has a generic confidentiality clause and no mention of the specific details of the invention, then the court is unlikely to be satisfied that the criteria set out in Coco v AN Clark has been met.

Proceedings for a breach of contract are more likely to be centred on the interpretation of the contract as a whole rather than the specifics of the invention and whether they are covered by a generic confidentiality clause.

Contractual interpretation

An employment contract is a contract like any other and it can be interpreted using the law relating to contractual interpretation. If a breach of contract proceedings is oriented around an employee disclosing details of an invention to a competitor, then the meaning of a generic confidentiality clause is likely to be central to the proceedings as the employer argues the clause clearly covers the invention and the employee (or the competitor) likely argues that the clause is ambiguous. 

In interpreting a generic confidentiality clause in an employment contract, we can apply what was said in NLA Group Ltd v Bowers [1999] 1 Lloyds’ Rep 109. This judgement said that it was necessary to look at all of the relevant background information when interpreting a clause that could cause confusion.

Additionally, recent case law from the UK Supreme Court (Wood v Capita Insurance Services [2017] UKSC 24) sets out that commercial common sense and the meaning of the words used in the contract both have a role to play when interpreting a contract.

That is to say, the relevant background information needs to be considered and commercial common sense will need to be applied in arriving at an idea of what the generic confidentiality clause means.

The circumstances surrounding the employment contract would therefore become important in addition to commercial common sense. Commercial common sense would suggest that the employer and employee knew what they were entering into when the contract was signed and would also know that inventions devised by the employer would be an example of confidential information and covered by a generic confidentiality clause.

That is to say, disclosing details of an invention may be argued to be a breach of contract – even if the confidentiality clause is not specific enough to benefit from protection under the law on breach of confidence. Remedies relating to a breach of contract, such as damages or other remedies set out in the employment contract, may then be secured – dependent on the remedies set out by the employment contract.

UDL Comment

It is not possible to fully mitigate against the risk of employees disclosing information relating to inventions to competitors. Even if employees are asked to leave their work on the premises, the details relating to important projects can simply be relayed from the employee’s memory without requiring access to a specific file or document. 

For specific projects, specifically drafted NDAs are recommended in addition to confidentiality clauses in an employment contract. This will provide some legal protection against a breach of confidence if a prejudicial disclosure occurs.

For employees not employed on specific projects, more practical steps can be taken such as controlling access to those specific projects both in terms of creating physical barriers like walls and preventing and controlling access to the relevant electronic files and rooms. Additionally, a simple step such as making sure all notebooks relating to projects are locked away when the relevant personnel are off the premises will make it more difficult for breaches to take place even if it does not make those breaches impossible.

If it is suspected that an employee has disclosed an invention to a third party before a patent application has been filed, it is advisable to file a patent application as soon as possible to try to protect that invention before a verifiable publication can be determined. It is also advisable to place a watch on relevant competitors to check for patent applications covering similar concepts to the invention as it may be possible to initiate entitlement proceedings against patent applications covering the disclosed invention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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