To compete effectively, companies must demonstrate detailed knowledge of their customers' business requirements and keep extensive data about various types of client transactions. This information has an inherent value but, obviously, it is also vulnerable to misappropriation, which can easily give rise to disputes.
In particular, problems occur when departing employees claim ownership of customer-related data. They may well believe that because they secured the client initially, built up the account and compiled much of the information, it therefore "belongs" to them and can be taken for use in a new job. Their former employers, though, naturally tend to see things quite differently.
As a starting point in such cases, it is important to realise employers do not have proprietary ownership over all client records. Therefore, former staff are free to use data described as trivial, anything which has ceased to be confidential or which is easily available to the public. Against that, though, if a former employee commits something to memory, as opposed to retaining it as a written or electronic record, that information does not automatically cease to be confidential.
This applies especially if the data concerned is considered a trade secret. The basic definition of a trade secret is information used by a company that could cause real or significant harm to the business if disclosed to a competitor.
The owner has every right to limit dissemination and restrict widespread publication of such data - a usual example is the recipe for Coca-Cola - and therefore trade secrets must be protected during and after an individual's period of employment with the relevant company.
In order to determine if certain information qualifies as a trade secret, there are several pertinent factors. These include the nature of the information, whether the former employee habitually handled confidential items and the extent to which details were already in the public domain. It may also be necessary to weigh up the likely damage that may result if disclosure leads to increased competition for the owner or previous employer.
In effect, this boils down to asking whether someone of average intelligence and honesty will think it improper to put the information at the disposal of a new employer. Where necessary, the court will determine this on an objective basis. A basic guideline is that trade secrets can include information relating to business strategies, product designs and specifications, and goods bought, but not mere customer names. Even when data cannot be classified as a trade secret, it may still be viewed as confidential.
This category tends to cover factual data, such as the contact details of suppliers, which are of great value to the employer but not the exclusive property of one company. The key point is that staff are expected to protect confidential information during employment but are not obliged to do so afterwards. Employers may try to create limits by asking departing staff to sign confidentiality clauses. But, even so, for reasons of public policy, they cannot prevent the future use of any data rightfully considered part of a former employee's general skill and knowledge.
Disputes often centre on what logically falls under that definition and, therefore, whether something constitutes a trade secret or is simply confidential information.
Employees invariably argue that what they learned in the course of their work forms part of their general skill and knowledge. They maintain it is not separable, so they should be free to use it to pursue their livelihood. In legal terms, it is very difficult to draw a clear line, but employers can help themselves by taking a number of preventative measures.
Firstly, they should always make clear to staff which information is regarded as a trade secret and which is confidential. It is also important to keep such data separately and mark it appropriately.
Secondly, employers should require staff authorised to handle any such information to sign a confidentiality clause. To be effective, the clause should be express, stating and defining terms unequivocally rather than leaving them as implied.
The aim is to set clear boundaries so that there is no room for doubt or later dispute.
This is not a legal requirement, but there is a growing tendency to include such clauses in a stand-alone agreement. However, if the scope of the confidentiality clause is not well defined, it may be difficult to uphold and may result in a court refusing to grant an injunction because of a lack of sufficient precision.
Finally, the company's employee handbook should explain the importance of confidentiality and the protection of trade secrets.
Strategies and internal procedures should then exemplify this, with confidential data being protected by special passwords, encryption and protocols to prohibit employees from forwarding sensitive information to personal accounts or accessing it from external premises.
Susana Ng is senior associate with Allen & Overy
