The Covid-19 lockdown restrictions have significantly impacted upon the employer/employee relationship with it being reported that 7.5 million workers have been furloughed.

Longer term effects may be unavoidable as some employers will be forced to make cut-backs to their workforce. As employees move on to join new businesses, or to set-up on their own, one issue which ought to be considered is the risk of misuse of confidential information.

The case of Trailfinders Limited v Traveller Counsellors Limited & Others, which was decided earlier this year, serves as a useful reminder of the way in which the court balances the need to protect confidential information with the risk of inhibiting legitimate competition.

The facts of the Trailfinders case

The Claimant, Trailfinders, is a travel agent with 37 branches in the UK and Ireland, employing over 700 sales consultants. The Second to Fifth Defendants in the case were former sales consultants at Trailfinders who left to join the First Defendant, Travel Counsellors Limited (TCL).

Trailfinders alleged that when the Second to Fifth Defendants left they took with them the names, contact details and other customer information, and that they continued to access Trailfinders’ customer database after the termination of their employment.

Trailfinders claimed that each of the Defendants had misused its confidential information.

What will amount to confidential information?

The Trailfinders’ case helpfully summarises the three classes of information which an employee may obtain through their employment:

1. The first class of information is that which is obviously not confidential and so not capable of being protected.
2. The second class of information is confidential information which is acquired during the normal course of employment and which becomes part of an employee’s experience and skills. This is capable of being protected during the term of the employment relationship.
3. The third class is information which is of the nature of a trade secret (such as a chemical formulae or special method of construction) or which has a high degree of confidence. This is capable of being protected both during the term of the employment relationship, and following its termination.

Implied into every contract of employment is a general duty of good faith and fidelity which restrains an employee from misusing both the second class and third class of confidential information during the term of employment. This duty comes to an end upon termination of an employment contract.

There is a further, narrower implied term in every employment contract not to misuse the third class of information even after the termination of the employment contract.

Second class – is it really part of an employee’s skill and knowledge?

Former employees will often seek to defend their use of confidential information on the basis that it forms part of their skill and knowledge and they are therefore free to use that information following the termination of their employment.

The Trailfinders’ case is helpful to employers in that it makes it clear that:

• copying or making a list of the employer’s customers for use after the end of the employment, or deliberately memorising the list for such use, is likely to constitute a breach of confidence.
• it is not a defence for former employees to contend that they could have obtained certain information from publicly available sources, if they did not in fact do so.
• the court expressly left open the possibility that even if information is truly part of the employee’s experience and skills and could be used by the employee for their benefit and the benefit of a new employer, it may possible to prevent the sale of that information.

Third class – what information may be protected after the end of the employment relationship?

Misuse of this third class of information is likely to cause an employer the greatest damage and is therefore capable of being protected even after the termination of the employment relationship.

The Trailfinders’ case helpfully reminds employers of the questions to ask when assessing whether confidential information bears the hallmark of this third class:

• consider the nature of the employment – those roles which involve the habitual handling of confidential information may impose a high obligation of confidentiality because the employee can be expected to realise its sensitive nature.
• consider the nature of the information itself – the fact that the circulation of certain information is restricted to a limited number of individuals may be indicative of its confidentiality.
• consider whether the employer communicated the confidential nature of information to the employee. Information will not be confidential just because it is described as confidential. However, an employer’s treatment of confidential information may be relevant to its status.
• consider whether the relevant information can be easily isolated from other information which the employee is free to use or disclose.

The court’s decision in the Trailfinders’ case

The court held that the Defendants had extracted details relating to at least 32 customers from Trailfinders’ databases. The court rejected the Defendant’s assertions that they could have obtained Trailfinders’ customer information from public sources, because they were found not to have done so.

The court held that the former employees and TLC had misused Trailfinders’ confidential information.

Conclusion

The present climate may result in conflicts arising in relation to the misuse of confidential information. The following key points may assist employers in mitigating, investigating and responding to that risk:

• consider whether employment contracts clearly define an employee’s obligations with regards to the protection of confidential information.
• communicate the confidential nature of information to employees. This could include marking information as confidential, restricting access to certain information to certain individuals, and/or utilising password-protection systems.
• investigate a departing employee’s computer systems. Consider whether there is any unusual activity such as deletion of emails, sending of information to personal accounts, and or increased printing activity which may be indicative of a misuse of confidential information.
• challenge assertions that information has become part of an employee’s skill and experience. If a former employee could have remembered the information or otherwise obtained customer contact details from LinkedIn or another public source, this will not be a defence if the information was in fact misappropriated from your business.
• consider the position of the new employer in any dispute.

For further information on the issues raised in this article please contact Paul Jonson or Sarah Bazaraa.

Contact details:
Paul Jonson
Senior Partner
T (0)7737 571147
E paul.jonson@pannonecorporate-com.stackstaging.com

Sarah Bazaraa
Director
T (0)7920 237599
E sarah.bazaraa@pannonecorporate-com.stackstaging.com