MANAGEMENT
legal
Protecting your vital assets How can you ensure confidential business information is kept as such by employees, both during their employment and when they leave? Employment lawyer Matthew Welch explains
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he publication by Wikileaks of confidential information from US diplomats demonstrates the damage that can be done by unwanted disclosure and that even the largest organisations can suffer. On the other hand the recipe for Coca Cola has remained a well kept secret for decades. Information about your firm and how you do business is a vital asset that needs to be guarded from competitors. There are legal and practical steps you can take to protect business information, both while employees are with you and when they leave to work for a competitor. DURINg eMPlOYMeNT as their employer, one of the main controls you have over their misuse of the information is the fact that an employee owes you a fundamental duty to act honestly, not to compete and to keep confidential information secret, especially trade secrets. This duty does not have to be spelt out in the contract of employment, but it helps greatly if it is and if additional terms, such as requiring the employee to work only for you and defining clearly what you regard as confidential information, are included. This duty is known as a duty of fidelity. For directors and senior employees there is an additional duty called a fiduciary duty, which means they must act in good faith. They must, for example, give their employer their undivided loyalty; they must not have a conflict of interest with their employer; and they must use any of the employer’s confidential information only for the benefit of the employer. WHaT IF THe eMPlOYee BReaCHeS THeIR DUTY? During employment a breach of a duty of fidelity or of a fiduciary duty will be a disciplinary matter. as the employer you should follow the disciplinary procedure in the aCaS code. anything other than a minor breach by the employee will normally justify you dismissing the employee summarily. The risk then is that the employee will go off to
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august 2011 www.dealersupport.co.uk
set up in competition or work for a competitor. In these circumstances, as an employer, you will need to see if you can apply to a court for an injunction preventing the employee working in competition and obtain damages for any loss you may have suffered. There may also be other steps you are able to take. aFTeR THe eMPlOYMeNT eNDS While employed the employee must not disclose confidential information. But the duty changes when the employment ends. after the employment ends the employee must not disclose trade secrets, but can disclose some confidential information that they could not disclose while employed.
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rade secrets cover a narrower range of information than confidential information and include such things as manufacturing processes, including chemical formulae or designs, computer source codes and business plans and methods. To be protectable the information must be used in the business; if disclosed to a competitor it is likely to cause real or significant damage and the employer must have limited the circulation of the information. The duty not to disclose trade secrets applies regardless of whether the employee resigned or was dismissed with or without notice. ReSTRICTIVe COVeNaNTS as a result of reduced protection of confidential information once an employee has left, employers need to take additional steps. Usually the employer will rely on restrictive covenants and confidentiality covenants in the contract of employment. Special care needs to be taken to ensure the covenants are tailored to protect the particular legitimate business interests of the employer. Confidential information should be clearly identified to improve the prospects of confidential information being treated as a trade secret. Ideally restrictive covenants should be in the contract of employment that the employee signs when their employment starts. If offered a detailed contract at the outset the employee is less likely to dispute the terms of