Duty of confidentiality after employment
- Helen Curtis
- Updated: Fri, 9th Dec 2016
Does a departing employee have a duty of confidentiality? You can deter the employee and new employer. Unfortunately, you can’t prevent an ex-employee divulging some “confidential” information.
In this insight, we look at
- The implied duty of confidentiality.
- How to protect confidential information by way of restrictive covenants.
- What can be done if your employment documents are not up to scratch – revise, or on exit enter into a settlement agreement.
Duty of confidentiality after employment terminates
It is an implied term of employment that whilst employed an employee must not:
- Disclose to third parties the employer’s confidential information and trade secrets, if
- Obtained during and as a result of, the employment;
- Use the employer’s confidential information for their own purposes.
So, first draw attention to the employees’ implied duty of confidentiality during employment. To reduce risk, emphasise this contractual duty post-termination. However, in practice once employment ends the implied duty of confidentiality survives only to protect genuine trade secrets.
The common law rules and what can be done
The common-law trade-secrets prohibition does not protect most businesses. For example, professional services firms rarely possess specific trade secrets. Nevertheless, such firms have valuable referrers and client contact lists.
Employers should expand the implied duty of confidentiality after termination. Include express terms in the employment contract or director’s service agreement. Such contractual express terms usually cover the period of employment and post-termination in perpetuity.
Obligations on employment termination
Usually, employees have an obligation to return company property, e.g. electronic devices, paper documents. Well drafted employment contracts require employees, on termination of employment, to irretrievably delete any information relating to the business. That should include any information stored on any electronic device. If in doubt, update the contract to fit with modern working.
What the courts will look at
Such provisions often influence courts in the employer’s favour. This includes court orders for the destruction of confidential information on ex-employee’s electronic devices. If necessary, the court order could stretch to their new employer’s devices.
Such an order was recently awarded in the case of Arthur J. Gallagher Services (UK) Limited v Skriptchencko & others. Skriptchencko, an ex-employee, misused confidential information about Gallagher’s clients.
Seeking inspection and destruction of confidential information
Skriptchencko left Gallagher’s employment to join a rival firm of insurance brokers. Gallagher suspected Skriptchencko wrongfully used its confidential information. So, Gallagher brought a claim against Skriptchencko and his new employer. The High Court granted an order for the:
- Inspection of electronic devices and computers belonging to Skriptchencko and his new employer, and unusually,
- The deletion of any confidential information belonging to Gallagher found on such devices.
In a different case, an employee was found guilty of unlawfully transferring information about clients to his personal email address, before moving to a new job. Employers can prosecute ex-employees, if experts draft the employment documentation.
Tailoring your employment contracts
Define ‘confidential information’ sufficiently widely to include everything your employee may create or access whilst employed. Tailor the definition to reflect the employee’s and employer’s activities. All businesses develop. Hence regularly review confidentiality clauses to reflect new exposures. Boilerplate, one size fits all text simply doesn’t work. Professional service firms take note.
The definition of confidential information might include:
- Existing and prospective activities of the business e.g:
- Business plans,
- Financial information;
- Existing and prospective customers,
- Including customer lists;
- Existing and prospective suppliers;
- Existing and prospective marketing information e.g:
- Research and development activities;
- Any information given to the employer or employee in confidence by;
- Other business contacts.
Second chance with a settlement agreement
You can restate confidentiality obligations in a settlement agreement. This is useful if the employment contract was wrong, or you want to enhance the original obligations.
To be legally effective, if you restate the obligations then the ex-employee should receive payment in return. The payment for the re-stated obligations is taxable under PAYE. There is often little guidance as to the re-stated obligation’s taxable value.
A few simple steps, that often don’t appear important, can protect your business and keep you out of court.
Helen Curtis is a partner in the corporate team at Gannons. Helen acts for a variety of clients across a broad range of sectors. Helen’s experience extends to addressing employment issues both during employment, after, and in the context of a corporate transaction.
Drafting settlement agreements and defining "confidential information" requires commercial awareness besides legal knowledge. Why not call or email me now to arrange an informal discussion.