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How safe are your company secrets?

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Having watched the News of the World unravel so spectacularly, and so publicly, the business world now worries about issues of confidentiality, and protecting commercially sensitive information, as never before. 

Confidentiality clauses are written into many contracts – commercial and employment – but under what circumstances can they be set aside and your company’s secrets broadcast for all to see? 

The law takes quite a cut and dried approach to confidential information, separating it into four categories with different levels of protection for each.

  1. The highest level, afforded the most protection, is “trade secrets” – the classic example being Coca Cola’s secret recipe. Within the employment relationship there is an implied duty of “trust and confidence” here, which means employees must not divulge this information whether or not this is specified in the employment contract (although it is advisable to have well drafted contracts) – and even long after their employment has ended.
  2. The next level is “confidential information”, such as client lists, business plans, financial data, etc. This information is protected during employment, but whether the protection continues once employment has ended is a grey area. This type of information is often itemised in employment contracts for clarity, although a court will not accept that this information is confidential without carrying out its own analysis and will only grant protection to information that is genuinely confidential rather than just information that a business would prefer to keep to itself.
  3. The third category is “skill and knowledge”, which is not generally protectable at all. 
  4. Lastly, information that is “in the public domain” is not protectable at all.

A few tips: more clarity can be given to the grey areas by detailing confidentiality issues and expectations in a written employment contract. But don’t chuck everything but the kitchen sink in there, as the courts may set the whole contract clause aside, removing any protection at all, if it is deemed over the top. 

Similarly, an “end date” is important to avoid the courts taking the view the clause is too restrictive, restraining former employees forever, which may lead them to voiding the entire clause and removing any protection at all.

One of the biggest problems with confidentiality breaches is proving them evidentially; proving an individual has stolen information and used it can be very difficult. Better to have non-compete clauses as well as confidentiality clauses, the whole mechanics affording better protection. But again, care is needed to make sure these also are not too widely drafted as they will be voided by the courts if deemed too restrictive.

So let’s assume you have drafted your contract terms perfectly, with enough detail for clarity, without going too far and being over-restrictive, and with a perfect blend of confidentiality and non-compete clauses to achieve the best protection for the business. There are still a number of circumstances that could mean all this is set aside and your confidential information exposed.

  • First, a genuine whistleblower, ie one who satisfies the strict criteria for protected disclosures in the public interest, will not be reined in by confidentiality clauses.
  • Second, however perfectly drafted, your confidentiality or non-compete clauses will be completely useless if you, as employer, commit a fundamental breach of contract – whether by dismissing someone unfairly, or by some other breach of trust and confidence that enables the employee to claim constructive dismissal. A very good argument for being meticulous about your HR practice!  
  • Third, duties to a court will in most cases override confidentiality. Individuals cannot lie in court to protect a client or employer and if they were to do so they would be guilty of perjury and may be held in contempt of court.

There are special rules governing regulated legal advisers called to give evidence against their clients: legal professional privilege protects all communication between lawyers and clients from being disclosed, even in court, without the permission of the client. A call for this privilege to be extended to tax accountants is making its way through the courts, but is not there yet.

At least you know your secret is safe with us!

Tracy Lacey-Smith is a partner in the commercial litigation and dispute resolution department at SA Law LLP.

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