26 July 2012

Confidential information — top tips for protecting it when your employees leave


Claire Christy
Partner | UK

Imagine this scenario:

A key employee has been working with you for several years. He comes to see you on a Friday afternoon to hand in his notice. When you ask him why he is leaving he replies that he thinks its time for a change. He’s been offered a promotion with a pay rise elsewhere and it’s just too good an opportunity to turn down. What are your thoughts on hearing this news? Do you wonder what the employee may have done to impress his new employer – promises of client lists and contact details perhaps, or copies of business plans and sensitive marketing reports? In a very recent High Court case, shortly before his resignation, an employee had photocopied documents, downloaded some onto a USB stick, and forwarded others to his private email account. He also gave a copy of his Outlook contacts to his new employer and shared other information. Fortunately for the employer, it was able to persuade the High Court to order an injunction to prevent any further use or disclosure of those parts of the information that would be most likely to lead to damage to its business if they were used by someone else.

To make sure you are in the same strong position as the employer in this case consider our five top tips:

  • Establish a paper trail
  • Protect key documents
  • Act before rather than after the employment terminates
  • Know what your employees are up to
  • Be prepared for quick action if you need an injunction.

Tip number 1: the paper trail

  • Before you even get into the sort of difficult scenario described above, give some thought to what you consider to be confidential or commercially sensitive information. What do you have that is worth protecting – financial forecasts and budgets, business plans and marketing ideas?
  • Then have a look at your employment contracts. Do they include terms or refer to policies on confidential information? Do they include express terms specifying the kind of information you are trying to protect? What can employees do with Outlook or LinkedIn contacts for example? What about accounts that contain a mixture of personal and business contacts?
  • Being as specific as possible about the information you are trying to protect puts employees on notice about what you as an employer consider to be confidential and will make it easier for you to rely on such a clause later on if you need to.
  • You can also protect general non-confidential information provided your contract is clear about what you are protecting. If you include a provision preventing employees from taking copies of any company materials on termination or retaining copies on personal computers etc, you will be able to sue the employee for breach of contract even if the information is not actually confidential. The employee may also be ordered to return the information to you or destroy it. This is exactly what happened in a recent High Court case in which Withers was involved.

Tip number 2: Protect key documents

  • Establish the practice of password protecting key documents and limiting their circulation to those who need to have access. Keep soft copies in folders with restricted access, restrict the production of unnecessary hard copies and make shredding facilities easily available. Employees should be accountable for the whereabouts of key documents that you entrust to them. Impose strict rules prohibiting the removal of confidential information from the office or downloading it to computer systems that are not under your control.

Tip number 3: Act before rather than after employment terminates

  • On the other hand the scope of what can be protected after termination is much more limited, namely trade secrets and information akin to a trade secret. A Court will always ask – is it sufficiently confidential? It will start from the standpoint of not wanting to prevent an ex-employee from carrying out his or her profession. An employer is in a much stronger position if it acts whilst the employment contract is still in force, as it can direct employees to do specific things and monitor compliance.

Tip 4: Know what your employees are up to

  • Once you have your carefully worded clause in place, take steps to maintain the confidential nature of your documents. Are your employees respecting the confidential nature of documents? Once confidentiality is lost it cannot be clawed back. So if a business plan, for example, is circulated to a large number of people within the firm and not treated with confidence amongst your employees, its obvious that maintaining its confidential nature is going to be difficult. Are employees at risk of disciplinary action including dismissal with or without notice if they do not maintain the confidentiality of documents?
  • What do your contracts say about forwarding emails to private email addresses (which carries a risk that confidentiality can be lost?) If you have a company policy which says this is not permitted, make sure it is enforced, across the company, so you have a better chance of relying on it if there is a breach. Often companies have such policies in place but then do nothing to check what employees are doing. The Court may query the true motive for singling one employee out in a company that does not ordinarily enforce the policy.
  • Ensure that you reserve the right to subject work computers and personal computers, laptops, phones etc to forensic examination both during and after employment. This may deter employees from forwarding company information to private or external e-mail addresses.
  • What do your contracts say about returning company documents on termination of employment? One option is to insist that all documents, whether confidential or not, are deleted or destroyed on termination and to follow up with employees to make sure this has happened, for example, asking for written confirmation that they have done so. Checks can then be made on their electronic devices to see if they have complied.
  • Consider putting an employee on garden leave for the duration of his notice period, so he cannot actually start working for his new employer. He may of course be tempted to work ‘behind the scenes’ and it may be difficult to police what he is doing on a day to day basis, but if you have evidence of him doing this, this is a breach of contract for which you may be able to obtain an injunction and/or damages.

Tip 5: Be prepared for quick action if you need an injunction

  • Your resigning employee says he’s complied with his contractual obligations. Great! But you later discover he has forwarded a number of emails to his private email address, the timing of which is suspicious. Before jumping to conclusions it is worth taking the time to look at what other emails and documents have been forwarded to private email accounts and when. Were there legitimate business reasons for this or was it done ‘out of the ordinary’‘ and if so ‘when’?
  • If you have evidence that the employee has been up to no good and had used or disclosed confidential information without your permission or without good or proper reason, the Courts can assist. Courts can order temporary or permanent injunctions to restrain ex-employees from using confidential information where information is likely to be valuable to a competitor and where it may be difficult to prove or quantify financial loss.
  • However, the Court will insist on employers being very specific about what they want to seek protection for and will only protect confidential information.
  • Before taking action consider also whether the employee has good reasons for his actions – is forwarding information to a private email address a common work practice? If so, a Court is far less likely to order injunctive relief.
  • Courts are also alive to the fact that these kinds of claims by employers can be used to oppress and harass competitors and ex-employees. You therefore need to give full and proper particulars of all the confidential information you are seeking to protect. If you don’t, there is a real risk the Court will infer that your motives are to harass and it may therefore strike out your claim.
  • Before spending time and money protecting the information you have identified, consider whether it really is important and how long it is likely to remain confidential. Often employees argue that the information in dispute is trivial, so be ready to rebut this. If in reality the information is unlikely to be of very much value or retain confidentiality for long Court proceedings may deliver little benefit for the cost involved.
Claire Christy Partner | London

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