Duty of confidentiality post-employment

Workplace confidentiality

Does a departing employee have a duty of confidentiality? Can an employer deter the employee and their new employer from using its confidential information?

Without express contractual protection, an employer may face difficulties preventing a departing employee from using or disclosing confidential information that falls outside the scope of the implied duty.

What are the employees implied duties of confidentiality?

It is an implied term of employment that, during employment and afterwards, an employee must not:

• Disclose the employer’s confidential information or trade secrets to third parties where the information was obtained through their employment.
• Use the employer’s confidential information for their own purposes.

It is therefore important to remind employees of their implied duty of confidentiality, alongside any express obligations in their employment contract or workplace confidentiality policy. Employers should also explain their employees’ continuing contractual obligations after termination. In practice, the implied duty generally survives termination only to protect genuine trade secrets.

How to make express provision for employee confidentiality

Relying on the implied duty of confidentiality offers less protection than a clearly drafted express contractual obligation. Disputes can arise over what information is protected, and certain restrictions, such as prohibiting employees from copying and using client databases, will not necessarily be implied into an employment contract.

Employers should define ‘confidential information’ sufficiently widely to cover the commercially sensitive information employees may create, receive or access during their employment, while ensuring the definition is appropriate and enforceable.

If an employer wishes to amend an existing employment agreement to address confidentiality in greater detail, the employee’s agreement will generally be required. Unilaterally imposing changes may expose the employer to legal risks; an employee’s refusal to agree to a proposed change does not, by itself, justify dismissal.

How to define employment confidential information

The definition of confidential information might include:

• Existing and prospective business activities, including business plans and financial information.
• Existing and prospective customers, including customer lists and databases.
• Existing and prospective suppliers.
• Marketing information, including plans, strategies and tactics.
• Research and development activities.
• Information provided in confidence by customers, suppliers, employees and other business contacts.

A clause requiring employees to return or delete confidential information can help protect the employer’s interests. In appropriate cases, a court may order the return or destruction of confidential material held on an ex-employee’s devices or, where justified, material held by a new employer. Any inspection of personal devices or access to third-party systems must be approached carefully, with regard to privacy, data protection and the evidence available.

Include confidentiality clauses in a settlement agreement

The definition of confidential information might include:

• Existing and prospective business activities, including business plans and financial information.
• Existing and prospective customers, including customer lists and databases.
• Existing and prospective suppliers.
• Marketing information, including plans, strategies and tactics.
• Research and development activities.
• Information provided in confidence by customers, suppliers, employees and other business contacts.

A clause requiring employees to return or delete confidential information can help protect the employer’s interests. In appropriate cases, a court may order the return or destruction of confidential material held on an ex-employee’s devices or, where justified, material held by a new employer. Any inspection of personal devices or access to third-party systems must be approached carefully, with regard to privacy, data protection and the evidence available.

Include confidentiality clauses in a settlement agreement

Employers can restate existing confidentiality obligations in a settlement agreement. This may be useful where the employment contract contains inadequate provisions or the employer wishes to agree additional protections.

Any new or enhanced obligations should be clearly drafted and supported by appropriate consideration where required. The tax treatment of any payment will depend on the circumstances and the nature of the payment; employers should obtain appropriate tax advice rather than assume that a payment for restated obligations is necessarily taxable under PAYE.

Practical steps can help protect your business and reduce the risk of costly disputes. Contact Gannons to discuss drafting or amending employment agreements to strengthen confidentiality protections and manage the risks associated with departing employees.