Tag Archive: confidential information

Employers need to review protection of confidential information as new European laws are approved to harmonise the protection of trade secrets

Employers need to be aware that the Trade Secrets Directive (TSD) was approved yesterday by the European Council, marking the end of its legislative journey in Europe. We can now expect to see its swift publication in the Official Journal, with entry into force 20 days later, with the impact that implementing legislation is likely to be introduced in each Member State by summer 2018. The aim of the TSD is to harmonise the protection of trade secrets across Europe and to make it easier for employers to adopt uniform business policies so that innovation and economic growth can be promoted. It will introduce a minimum level of protections, which can be supplemented by local laws.  Time will tell how each Member State will address this and employers should ensure they monitor progress to stay on top of the implications for their business.

The approval of the TSD comes at the same time as the US has brought into law the Defend Trade Secrets Act. This implements a federal basis for claims relating to misappropriation of trade secrets (for more on this, see our article, ‘Federal Trade Secret Bill signed into law‘). With the protection of trade secrets riding high in the international arena, directing attention onto this area, and gaining a full understanding of the implications of these new laws,  has never been more important for multi-national employers.

For employers in the UK (any Brexit aside) the imminent arrival of the TSD should serve as impetus to carry out a full review of how business assets, and confidential information in particular, are currently protected, with a particular focus on ensuring the requirements of the TSD are met. Whilst the TSD is potentially helpful in widening the scope of the commercial information which can be protected, failing to understand how to achieve this protection in practice, could instead lead to it being lost, with potentially devastating consequences for the business.

Here are the key issues for employers:

Meaning of trade secret

Under the TSD, a trade secret is information which is secret (in the sense that it is not readily known amongst the relevant circles); has commercial value; and, crucially, for which reasonable steps have been taken to keep it secret. The TSD’s specific focus on the reasonable steps which have been taken to protect the information is a change to the current UK regime, and should be a red flag to employers; unless employers can demonstrate those steps, protection of the trade secret may not be available.

Unlawful acquisition, use or disclosure of trade secrets

Trade secrets will be acquired unlawfully if obtained through unauthorised access to, or appropriation of, materials containing the trade secret, or through any conduct which is contrary to honest commercial practices. It seems likely that the meaning of ‘honest commercial practices’ will attract litigation. Use or disclosure of trade secrets will be unlawful if a person has acquired the trade secret unlawfully, or it is in breach of a confidentiality agreement, a contractual duty, or any other duty not to disclose the trade secret.

Whistleblowing

The TSD does not protect trade secrets where the disclosure of the information serves the public interest and reveals misconduct, wrongdoing or illegal activity. There are some differences to the current UK whistleblowing regime. Some potentially impact favourably on employers (eg it appears that actual misconduct etc has to be disclosed, rather than the worker simply having a reasonable belief that it exists); others less favourably (eg it appears there is no restriction with regards to whom the worker can disclose the information). However, the provisions lack clarity and it seems likely that they will be the source of litigation and references to the ECJ. This lack of clarity has also prompted the the Greens/EFA group in the European Parliament to launch a draft whistleblower protection directive, which has received cross-party support and is awaiting approval and proposal by the European Commission. As currently drafted, the draft whistleblower protection directive would set a minimum standard for whistleblower protection which affords more protection than many stand-alone whistleblower laws. However, this is only the beginning of a very long legislative process.

Sanctions

The UK will need to introduce provisions to provide remedies for unlawful acquisition, use or disclosure of trade secrets. The remedies must include interim injunctions, permanent injunctions and damages. It is also obliged to include sanctions, including the possibility of recurring penalties, for any person who fails to comply with an interim or permanent injunction.

In the lead up to the implementation of the TSD, employers should take the opportunity to carry out a thorough audit of the information which the business wishes to protect, and assess whether it meets, or could potentially meet, ‘trade secret’ status, in particular by reviewing the steps which are in place to protect it. Employers should carry out a review not only of existing contractual provisions and policy documents, but also the current tangible, physical protections of confidential information, and the training which staff have had in this regard.

Also, with the launch this week by the Government of its call for evidence into the impact of non-compete restrictions, protection of business assets looks set to be a key issue for employers throughout 2016 and beyond.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/employers-need-to-review-protection-of-confidential-information-as-new-european-laws-are-approved-to-harmonise-the-protection-of-trade-secrets/

Important Court of Appeal garden leave decision

Tim Marshall a Partner in our London office, comments: The Court of Appeal has today handed down judgment in an important case on garden leave. The decision in Sunrise Brokers LLp v Rodgers extends the impact of the decision of the Supreme Court in Société Generale v Geys and could have implications for how employers deal with the resignation of a key employee to join a competitor.

Facts

Sunrise Brokers LLP (Sunrise) is an inter-dealer brokers. Mr Rodgers worked as a derivatives broker under a contract signed in September 2011 for a three year fixed term, terminable by him by twelve months’ written notice given on or after the expiry of the fixed term. The contract contained a garden leave provision enabling Sunrise to place him on garden leave during any period of notice, and six month post-termination restraints. There was provision for any period of garden leave to be ‘set-off’ against the post-termination restraints. In March 2014, he signed an agreement with one of Sunrise’s principal competitors, EOX Holdings Ltd (EOX) to commence working for them in New York in January 2015. On 27 March he informed a director of Sunrise that he was leaving and wanted to leave immediately. He was asked to return to work but refused, left the office and did not return. On 9 April Sunrise’s general counsel told him he should come back to work with a view to agreeing a sensible termination plan, which he again refused. He emailed the company saying that he was relocating to New York and would not start work elsewhere until September 2014, and would agree to remain on garden leave. In light of his continuing absence from work, Sunrise did not pay him in May. Sunrise’s lawyers wrote to Mr Rodgers saying that as he had not given notice in accordance with his contract he remained employed, not in a period of notice and fully bound by his employment contract. Mr Rodgers’ solicitors contended that he had resigned with immediate effect on 27 March. Sunrise indicated that they would be prepared to agree a reduced period of notice terminating on 16 October 2014.

In May 2014 Sunrise commenced High Court proceedings for a declaration that Mr Rodgers remained their employee until 16 October 2014, together with injunctions enforcing his obligations regarding working for a competitor until that date and then until 16 April 2015. The judge allowed the claim, although he declined to enforce the post-termination restrictions beyond 27 January 2015. Mr Rodgers appealed to the Court of Appeal.

Decision

The Court of Appeal upheld the High Court decision. As confirmed by the decision in Société Generale v Geys, Sunrise were entitled to choose whether to accept Mr Rodgers’ repudiation of the contract in purportedly resigning, or to affirm it and keep it alive. They had chosen to affirm. Mr Rodgers did not become entitled to terminate the contract due to the non-payment of salary in May as his entitlement to be paid depended on being ready and willing to work, which he was not. Sunrise was not obliged to pay Mr Rodgers up to the termination of his employment on 16 October 2014 as he had not been placed on garden leave, he had simply absented himself from work. Although an injunction should not be granted where the effect would be to compel the employee to continue to work for the employer, there was no rule requiring employers to give an undertaking as to pay which goes beyond their contractual obligation in order to obtain an injunction. The Court relied on a number of factors in upholding the injunction; the fact that Mr Rodgers was only not being paid because he was unwilling to attend work, the fact that it was clearly contemplated when he entered into the agreement with EOX that he might not be able to start until January, and his offer not to work until September. The Court concluded that this was not a case in which the granting of the injunction without the employer paying remuneration would mean that the employee was compelled to work for the employer.

The Court declined to offset the period during which Mr Rodgers remained employed against the period of post-termination restriction. It was common ground that Mr Rodgers could not have objected to a six-month post-termination restriction during which he would not have been paid. The fact that he was subjected to an additional four months unpaid was a consequence of his refusal to return to work; if he had done so, Sunrise would almost certainly have placed him on garden leave, and he would have been entitled to remuneration in addition to set-off of the garden leave against the restraint.

Implications

The facts of this case were fairly unusual; as the Court noted, the issue of payment only arose because Sunrise had not invoked the garden leave clause, which will not often be a safe course of action for the employer to take. However, the case does illustrate that when a key employee resigns without giving the appropriate notice, employers should not necessarily rush to invoke the garden leave provision without first considering whether there are alternative options.

The Court noted the unanswered questions which remain following the decision in Geys; whether, in a situation where it is the employee rather than the employer who has affirmed the contract rather than accept a repudiatory breach, the employee can sue for his salary. The decision in this case would seem to suggest that he can, but crucially only where he remains ready and willing to work.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/important-court-of-appeal-garden-leave-decision/

LinkedIn: Protecting confidential information

Lisa Hodgson, an Associate in our Birmingham office, comments: Social media is becoming an increasingly common business tool as it is easy to use, free and effective.  Many of our clients, particularly in professional services industries, encourage the use of LinkedIn as a forum for marketing. If you meet someone at a networking event you are now just as likely to add them on LinkedIn as you are to swap business cards.

LinkedIn has seen exponential growth over recent years.  It now boasts of having over 259 million members in over 200 countries and gets two new members per second.  In the UK alone there are 13 million members.  Over the past few years we have started to see a slow trickle of employment tribunal decisions relating to the use of social media, but these have tended to concern the use of Facebook rather than LinkedIn.

A recent trend we are seeing is that when employees leave employment there can be a dispute about who owns their LinkedIn contacts, particularly where they are setting up in competition with their former employer and are likely to use the contacts in their new employment. Given the growth in popularity of LinkedIn, employers are quickly realising that a departing employee’s LinkedIn contacts are just as valuable to the employee as the company’s own database of contacts. There are very few cases regarding the ownership of LinkedIn contacts made during the course of employment and we expect this to be a growth area in coming years.

In Hays Specialist Recruitment Holdings Limited -v- Ions, Mr Ions worked for Hays as a recruitment consultant. Before he left to set up a competing business he sent LinkedIn invites to some of Hays’ clients and candidates. Hays applied to court for pre-action disclosure of certain documents, so that it could assess the extent of Mr Ions’ wrongdoing and the merit of bringing a claim against him. Ultimately, the court took the view that contact details obtained during the course of employment will remain the property of the employer, even after they were added to LinkedIn, and it therefore granted the disclosure sought.

The recent case of Whitmar Publications Limited v Gamage & Others concerned the use and ownership of LinkedIn accounts and groups.  Around four months before they resigned from their employment with Whitmar Publications Limited, three employees set up a competing business called Earth Island.  When Whitmar discovered this after the employees had left, it brought proceedings against the employees seeking an interim injunction to restrain the use of its confidential information.  One of the ex-employees, Ms Wright, had managed four LinkedIn groups on behalf of Whitmar.  In court she claimed that the groups were personal to her and “just a hobby”, although it was established that she had no home computer.  Three days after leaving employment with Whitmar Ms Wright used the LinkedIn groups as the source of email addresses for an Earth Island email inviting contacts to an informal event.  Ms Wright refused to provide Whitmar with the user name, password or any other access details for the groups.

In delivering its judgment, the court required the ex-employees to give Whitmar exclusive access, management and control of the LinkedIn groups.  It also ordered them not to access or do anything that would inhibit or prevent Whitmar from accessing the LinkedIn group.  This was despite the fact that LinkedIn’s own terms state that ownership of a LinkedIn account is personal to the account holder.  This is the first example we have seen of a court having to weigh up the conflict between LinkedIn’s own terms of use and an employer’s right to its confidential information.

There are many unanswered questions surrounding employees’ use of LinkedIn and we expect that it will be many years until the position is clear as cases are rare.  For a business to have rights over employees’ LinkedIn or other social media accounts, it will undoubtedly need to be in a position to demonstrate that there is a sufficiently close link between such accounts, its business and the employees’ duties. 

To manage risks employers may want to consider taking the following practical steps:

  • in any social networking policy include guidance on the appropriate use of LinkedIn accounts, emphasising that use of such accounts is part of an employees’ role and responsibilities, that the accounts belong to the company, and providing steps for the release of login details on termination; 
  • the company should involve itself in the creation of employees’ accounts (for example, by requiring the employee to use the company’s email address for log in purposes and branding on their profile) and require that the employee maintains the account using the employers’ systems;
  • the employer should specify, either in the employment contract or policy, that any contacts made through social media should be added to the company’s central systems;
  • include provisions in the employment contract assigning any proprietary interest in contacts, added to an employees’ LinkedIn account during the course of employment, to the employer;
  • tailoring restrictive covenants to specifically provide for restrictions in the use of social media;
  • expressly stating in a garden leave clause that the employee is not permitted to access or update their LinkedIn account during garden leave;
  • in contracts, provide for the disclosure or deletion of all LinkedIn contacts belonging to the employer on termination of employment or the closure of the account;
  • where exits are negotiated, include provisions in any settlement agreement requiring the employee to surrender his or her social media account as a condition of payment of any settlement compensation.

Permanent link to this article: http://www.dlapiperbeaware.co.uk/linkedin-protecting-confidential-information/