1. Employment Issues under Trade Secrets in Malta

It is apt also to assess the implications of trade secrets law in Malta, specifically the New Trade Secrets Act, on the employer-employee relationship.

The 'trade secret holder' is defined by law as either a company or individual who has the right to manipulate or exploit the trade secret. In the case of an employer-employee situation, the trade secret holder would many times be the employer with the trade secret being used or worked with during the day-to-day running of the business.

As with any other IP right, the realm of trade secrets seeks to strike a balance between the rights of the holder and the rights of other stakeholders within society at large. The Trade Secrets Act in fact seeks to maintain equilibrium between the right to protect such trade secrets and worker protection. This is achieved even through the introduction of safeguards to employees and their representatives. The safeguards provide that nothing in the Trade Secrets Act is to be understood to offer any ground for restricting the mobility of employees and in particular, the law shall not provide any ground for:

  1. limiting employees' use of information that does not constitute a trade secret,
  2. limiting employees' use of experience and skills honestly acquired in the normal course of their employment, and/or
  3. imposing any additional restrictions on employees in their employment contracts other than those restrictions imposed by law.1

Since trade secrets are not registrable, formal steps need to be taken to show that protective measures have been taken in order for a given piece of information to be granted 'trade secret status'. Businesses should consider adopting some or all of the following:

  1. Non-disclosure agreements
  2. Confidentiality agreements and clauses
  3. Termination forms
  4. Written employee policies defining the employees' rights and obligations
  5. Technical and physical security measures, including passwords, encryption and data access limitations, and
  6. Company handbooks:
    • explaining different IP rights, including trade secrets
    • clarifying that the holder of such IP rights is the company
    • listing the company's trade secrets
    • explaining how such information is to be handled with additional levels of secrecy.

Employers need to ensure that the above measures are in conformity with the law and do not exceed the limits imposed by such law.

The implementation of the New Trade Secrets Act by the Courts will be interesting to follow. A noteworthy recent judgement that dealt with trade secrets and fiduciary obligations (albeit prior to the implementation of this Act) is the case of M.A.I.N. Services Case2. It is interesting to note that the judgement did not merely examine in extensive detail the nature and the effects of fiduciary duties but also dealt with the concept of trade secrets theft and misappropriation of confidential business information by the defendant.

Galea (the defendant) had previously been an employee and director of the company M.A.I.N. Services Ltd (the plaintiff). Eventually he resigned from his position and a key foreign supplier ended its business relationship with the business relations with Galea.

In its analysis, the court observed the following:

  • the business that the defendant was planning to open was in the same line of operation of the plaintiff;
  • the defendant had shown signs of opening his own business before he resigned from his position with the plaintiff and had even applied for his own VAT number before his official resignation
  • due to his position as employee/director, the defendant used to solely represent the plaintiff company with the foreign supplier and had intimate knowledge of this supplier;
  • the defendant had access to sensitive data belonging to the company.

In view of the above the court concluded that the defendant could not proceed to open an identical or quasi-identical business to that of the plaintiff due to the fact that the defendant had been entrusted with a fiduciary position, and such fiduciary duty persisted post-resignation.

Footnotes

1. Chapter 589 of the Laws of Malta, Article 4 (2)

2. M.A.I.N. Services Limited v Galea Albert Pro, 1246/2007, First Hall Civil Court, 28 September 2017.

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.