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.
It is an implied term of employment that whilst employed an employee must not:
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 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.
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.
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.
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:
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.
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:
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.