Protecting Confidential Business Information

Protecting confidential information is becoming an increasingly important concern for businesses worldwide.

The proliferation of digital mediums, the internet and smart phones means that records of sensitive data are easy to copy. Combined with the speed in which information can spread through channels such as social media, this greatly increases the potential damage which a confidentiality breach may cause.

The problem of employees distributing confidential information is easier to regulate when they are still working in the business as all employees are subject to a duty of good faith and fidelity to their employers.

However, once an employee ceases to work in a company a serious problem can potentially arise. Apart from highly secretive trade secrets, the duty of good faith does not cover confidential information once an employee leaves his job.

Therefore, in the absence of any agreement to the contrary, ex-employees are free to use the contacts and information they have learned in their next form of employment to their advantage.

Restrictive Covenants

The best way for an employer to protect their confidential business information in such cases is through inserting restrictive covenants in their employee’s contract of employment. Such provisions can take many forms including non-compete clauses, non-solicitation clauses and explicit confidentiality protection.

Provided the wording is well formulated and reasonable, restrictive covenants are likely to be an effective means of protecting company information, as any breach of the covenant will result in a cause of action against the employee.

Restrictive covenants may also serve an additional benefit in that rival companies may be wary of poaching clients who are subject to a confidentiality or non-solicitation agreements.

Confidentiality in Action

A recent series of events involving an insurance company illustrates the risks of employees taking advantage of confidential business information.

Michael Lent, a qualified solicitor, had been a director in Temple Legal Services for six years before leaving in 2014 to establish his own underwriting agency. Soon afterwards however, it was alleged that he had been soliciting a number of Temple’s clients and using their confidential information for use in his new business during his notice period.

Despite Lent’s denials, an investigation proved that he had accessed Temple’s highly confidential historic premiums and claims data and had even attempted to solicit another employee of Temple to assist him. This was clearly in breach of his fiduciary duties as a director.

Once the findings of the investigation became apparent, a consent order was agreed whereby damages and an eight month injunction were granted against Mr Lent.

Comment

While this case differs slightly from the more common issue of ex-employees breaching restrictive covenants in that Mr Lent was a director when he initially took advantage of the information, it is useful as a lesson for both employees and employers.

For employees, it is important to realise that they can be capable of breaching a term of their employment contract both during and after leaving a position when it comes to certain types of information.

For employers, it is advisable that restrictive covenants and confidentiality terms are clearly contained in the contract of employment so as to provide maximum protection for confidential business information.

For specialist litigation advice or advice regarding the protection of confidential information contact Peter Gourri today by email PGourri@rollingsons.co.uk or telephone 0207 611 4848.