Duty of confidentiality post employment

Does a departing employee have a duty of confidentiality? Can an employer deter the employee and new employer from using its confidential information. Unfortunately, without express written agreement from the employee the employer can be in difficulty.

Employee duty of confidentiality post employment

We  analyse:

  • The limitations on an implied duty of confidentiality after employment has ceased.
  • How employers can build in better protection for the business.
  • Creating a second chance for employers.

Implied duty on all employees and directors

It is an implied term of employment that whilst employed and afterwards that 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.

However, relying on an implied duty does not put the employer in as good a position as relying on an express duty.

Problem with the implied duty of confidentiality

Reliance on an implied duty is very limiting for employers in practice.  There will be resistance from the employee as to what is covered and what is not.  A number of important clauses such as not to copy client databases and use them are not automatically implied into any employment agreement.

Drafting clauses to avoid reliance on the implied duty of confidentiality

Best advice for employers is to define ‘confidential information’ sufficiently widely in the contract of employment to include everything your employees may create or access whilst employed.

All businesses develop. Where we see employers trip up is in not regularly reviewing confidentiality clauses to reflect new exposures. Boilerplate, one size fits all text simply doesn’t work.

If the employer wants to amend an existing employment agreement to deal with, for example, confidential information in detail, it will need the employee’s written consent.

If an employee withholds consent to the change to his employment agreement unreasonably there may be grounds for dismissal.

Defining confidential information

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:
    • Plans,
    • Strategies,
    • Tactics,
    • Timing;
  • Research and development activities;
  • Any information given to the employer or employee in confidence by;
    • Customers,
    • Suppliers,
    • Employees,
    • Other business contacts.

Obligation to delete confidential information

A term requiring an employee to delete and return confidential information is usually enforceable.  Courts do order the destruction of confidential information on ex-employee’s work and personal electronic devices. If necessary, the court order could stretch to their new employer’s devices.

Absence of clause in employment contract

In practice it can be difficult to control the deletion of confidential information if there is no express agreement.  Employers can expect employees to resist interference with their personal devices unless the employer has reserved the ability.

Example of an unlucky employee or lucky former employer

An order for destruction of information on devices was made in  Arthur J. Gallagher Services (UK) Limited v Skriptchencko & others. Skriptchencko, an ex-employee, misused confidential information about Gallagher’s clients.

Order for 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.

Second chance with a settlement agreement

Employers can restate confidentiality obligations in a settlement agreement. This is useful if the employment contract was wrong, or the employer wishes 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.

Alex Kleanthous

A highly experienced, tactically astute yet practical litigation lawyer, Alex has 30 years experience in resolving disputes.

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