Confidentiality and Trade Secrets

Where a person receives personal, sensitive or commercially important information in circumstances which are confidential or are in relation to the work which a person undertakes, then that person owes a duty of confidence to the owner of the information. The person receiving the information must ensure that they neither disclose nor make use of that information other than for the purpose which it was given without the consent of the owner of the information.

Duty to keep information confidential

All employees, whether current or former, are under a duty to keep confidential such information which they have acquired about their employer and their employers business which amounts to a trade secret or which is so sensitive that it needs the same protection as a trade secret. This is an implied duty and there is no need for there to be anything in writing for this duty to apply.Whilst it should be noted that the duty of confidentiality does not generally stop former employees from approaching customers or staff of the employer, it does prevent the disclosure of items such as client lists which could potentially damage the employers business. Any employer who wishes to prevent staff from approaching clients, customers and staff should ensure that an express contractual clause is included to restrict this - in the form of a non-competition agreement or restrictive covenant (see separate section dealing with this). An attempt to enforce this without any agreement of this sort could be liable for director's disqualification.

Permitted disclosure

There are circumstances, however, when an employee will be permitted to disclose confidential information - for example under the provisions of the Public Interest Disclosure Act 1998 because it relates to alleged wrong doing by the employer. In this situation it may be relevant for the employee to consult fraud lawyers for advice, especially in the case of money laundering and could bear contacting the SRA disciplinary solicitors or even the police.

It is also worth bearing in mind that there will be no breach of the duty of confidentiality if the disclosure is in relation to information which is already in the public domain - for example information which has already been disclosed through other sources. In this case you would not be required to contact business crime solicitors.

What constitutes confidential information?

The following are examples of information which might be considered to be confidential:

• trade secrets such as computer source codes, recipes, ingredient lists, chemical or scientific formulae, production or manufacturing methods, research results, blueprints, technical diagrams, precedents, and manufacturing data
• business processes, information and systems such as lists of clients and customer, marketing plans, budgets, trade databases, legal aid fraud, market analysis and any other information acquired by the employer to give them a market advantage
• professional information such as that which might be given to an accountant, solicitor or other professional advisor for the purpose of receiving professional advice
• personal Information about the employer, employees or clients and customers - for example personal papers and diaries, financial information, photographs and images, private and other information and anything else which could cause embarrassment or discomfort.

Factors to bear in mind when pursuing an actionIf you are an employer and confidential information has been disclosed by an employee then, before taking the matter, you need to ask four questions:

• was the information actually confidential - in other words was it information that was a trade secret or is it simply something which you would have preferred others not to have known
• was the disclosure of the information in circumstances which were capable of giving rise to a duty of confidentiality
• has there been or is there likely to be an actual unauthorised use or disclosure of the information
• can the costs of taking the necessary legal action be afforded - especially if the opponent is a major organisation

Creating an express duty

If as an employer you have decided to create an express duty - usually by incorporating that duty in the contract of employment, then you must take care to define clearly the scope of what is to be regarded as confidential information. Thus you must distinguish between that which is confidential to you, the employer and thus a trade secret and that which is the personal skill, experience and knowledge of the employee, which cannot be restricted.

This particularly applies to information which can be categorised as 'know-how' - is it knowledge of a particular process, for example, that is unique to that employer or is it information which the employee has developed as a personal skill, albeit during employment with that employer. In other words is it a skill generally that the employee has acquired or is it an understanding of a restricted process unique to that employer.

If an employer wishes to protect confidential information and access to customers and clients after a contract of employment has come to an end, then it may be advisable to be able to rely on an express term in the contract of employment to restrain the employee's ability to use information to avoid legal aid fraud. If this option is chosen the employer should take care to ensure that the term is drafted no more widely than is absolutely necessary otherwise it may be construed as being against public policy. Thus the terms must not attempt to stop the former employee from using general skills and knowledge acquired during employment which do not prejudice either the goodwill or the trade secrets of the employer.

Duty to employee

Finally, employers may also wish to bear in mind that they may owe duties of confidentiality to their employees, especially in relation to personal information gained during the course of employment and which have been communicated to the employer on the understanding that they would not be disclosed more widely.

The Author

This guest article was written by Duncan Finlyson a partner at Richard Nelson LLP, a nationwide firm of business solicitors.