How can an employer protect valuable information from being used by an ex-employee? In the absence of an express restrictive covenant to prevent the disclosure of trade secrets this can be extremely difficult, largely due to uncertainty as to what exactly is confidential information. The nature and scope of confidentiality clauses in a contract of employment has once again been the source of debate in a recent High Court decision.
The most significant case in this area is the Faccenda Chicken case (Faccenda Chicken Ltd v Fowler). Ex-employees of the chicken factory set up their own rival business and used commercially sensitive information acquired during their employment with the chicken factory. The Court of Appeal did not consider that such information amounted to a trade secret and set out guidelines.
In order to determine whether a particular item of information could be regarded as confidential after the employment comes to an end a number of factors should be considered, such as the nature of the employment, the nature of the information (is it equivalent to a trade secret?); whether the employee was advised the information was confidential; and whether the information which is alleged to be confidential is identifiable i.e. separate from the general know-how and skill of the employee.
In the recent case of SBJ Stephenson v Mandy the High Court decided that the employee was in breach of two restrictive covenants which sought to prevent him using his former employer's confidential information and soliciting its clients.
Mr Mandy had an express confidentiality clause in his service agreement with the claimant insurance company. In October 1998 he was offered and accepted a post with a rival company, starting work there in January 1999. His former employers learned that he had approached its clients with a view to obtaining their business for his new employer, and so they obtained an interim injunction. At the full hearing the High Court decided that the true distinction between information which should and should not be protected was that made in another case - Herbert Morris v Saxelby. There it was said that information such as trade secrets and names of customers was objective knowledge belonging to the employer. Things such as a man's skill and dexterity are subjective knowledge and belong to the employee and are not capable of protection.
In the Court's view disclosure of any of the information protected by the clause in Mandy's contract would be of value to a competitor and capable of causing real harm to his ex-employer's business. The information included items such as the names of clients, policy renewal dates and fees charged. The Court decided that that information satisfied the objective knowledge test and thus the confidentiality clause was enforceable.
So how can an employer protect valuable and sensitive information from being exploited by an ex-employee? Employment contracts should contain provisions preventing the use or disclosure of information during and after employment. Contracts should be tightly drafted and should define exactly what is confidential information belonging to the employer - otherwise such information could become part of an employee's general know-how and business acumen which he can go and use freely in a new job.
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.