Articles | Automotive – Misuse of Confidential Information – Choosing the Right Formula

Tom Maple, head of the Automotive Team at FSP, takes a closer look at the misuse of confidential information and the remedies available to employers.

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Tom Maple

Tom Maple

Automotive – Misuse of Confidential Information – Choosing the Right Formula

The writer acted on a dispute involving a Formula 1 team and one of its senior engineers after the Formula 1 team became concerned about the potential misuse of its confidential information after the engineer in question had been poached (lawfully) by a company operating in the same industry.

The question arose as to whether the engineer could be injuncted from using certain confidential information that the former employer were concerned he retained after he had left.

Confidential Information

As a starting point, confidential information which amounts to a trade secret remains protected after termination of employment in any event. However, all employers in the automotive sphere would be well advised to ensure that all of its employees and directors sign a contract of employment or service agreement which specifically sets out what that person must keep confidential so that, should the employer need to, enforcing their contractual rights is more straight-forward (relatively speaking). For example, a Formula 1 team will want to keep its material supplier lists confidential as well as its designs for the car. A motor dealership will likely want to keep its customer database confidential.

Whilst the car design may be regarded as a trade secret in any event, it may be that a court is less likely to allow an employer to prevent an outgoing employee from using supplier and customer data after termination where there is no agreement to that effect. Moreover, it is far easier to enforce a contractual covenant than a principle of law.

Confidentiality Clauses

Whilst restrictive covenants (e.g. non-compete clauses or non-solicitation of clients clauses) are, as a starting point, regarded as a restraint of trade, confidentiality clauses are, all things being equal, enforceable. Therefore, in circumstances where a businesses can show that there is likely to be a breach of confidence, they can apply for an injunction to prevent the misuse/ dissemination of all and any such information.

Whilst obtaining an injunction can be straight-forward in many instances, it is often far more challenging than you might think to show that certain information is confidential, all the more so when the alleged wrong-doer has already passed the information in question to other businesses, or even competitors – which happens particularly where an employee is particularly disgruntled and has no regard for the implications. If that happens, the court will consider damages as a remedy, but not an injunction. However, damages may not be an adequate remedy, all the more so where the defendant does not have any, or has limited, assets.

Pro-activity is key. Therefore, it is vital that employers ensure that contracts are signed and the employee gives back all confidential information that he has on his departure (see below).

If employers have a legitimate concern about the actions of an employee, then assuming they have a monitoring policy in place, they may wish to get the IT department (or an external IT expert), acting in accordance with that policy, to check any PC/ laptop/ smartphone after it has been handed back, as well as the company server, for evidence of any misuse (such as emailing confidential information to themselves outside of work hours (Employers would be wise to routinely keep an eye out for such practices – but must have a monitoring policy in place before doing so)).

Of course, things are less straight-forward in this day and age where employees regularly use (and are often encouraged to use – to save costs) their own smartphones and laptop…

The Contract - Get it signed

In most cases, employees agree to be bound by any confidentiality clauses or restrictive covenants in their contract of employment or service agreement.

However, all too often, businesses allow employees to commence work (or take on new positions following a promotion) before a contract has been signed. Where that is so, the court may refuse to allow an employer to rely on the terms of the unsigned contract even where the employee has been with the company for some time, making the position far harder for the employer and the chances of getting an injunction or damages far less certain and much more costly.

Interestingly, in a recent case at the High Court, an employer was allowed to enforce certain restrictive covenants in its employment contract against an employee, even though it was not signed because, in that case, the employee in question accepted that he had read the contract and it was agreed by all concerned that the employee had received the improved benefits set out therein following his internal promotion (i.e. enhanced pay and healthcare terms.

Recent Developments

20 years ago, the employer’s main concern was that the outgoing employee had printed off the customer list or the trade secret and taken it home for safe-keeping. In the age of laptops, smartphones, email and tiny cameras and video recorders, that is no longer likely to be the first port of call for determining if an employee his taken confidential information.

In light of this it was pleasing to see, from the employers perspective, that the High Court recently ruled that, in certain circumstances, an employer may be able to obtain an order for the destruction of confidential information taken from it by departing employees and stored on the ex-employees’ personal computers. Specifically, the order made by the High Court provided for the imaging and search of the ex-employees' electronic devices and deletion of any of the employer's confidential information found on them.

Data Protection Act

As well as ensuring that employees agree to keep information confidential in their employment contracts, it may also be effective to warn departing employees of the risk of prosecution under the Data Protection Act 1998 if they unlawfully take information about former clients. In this regard, an employee was recently prosecuted and fined £300 plus costs for taking the contact details of customers, as well as purchase history and commercially sensitive information.

Conclusion

Automotive companies, be it Formula 1, Rental or manufacturing (for example), are well advised to take all available steps to ensure that its confidential information does not end up in the hands of competitors. The only way to do that is to ensure that contracts are properly drafted, and signed, and the position regularly monitored.

Where a breach is likely, or has occurred, employers need to move swiftly and, where possible, an injunction may be the most appropriate remedy to obtain. Delay and you could be left with an award of damages with no prospect of recovering the losses sustained and a business worth a lot less as a result.

If you would like to discuss the issues raised herein, please give Tom Maple, Partner in our Dispute Resolution Team (0118 951 6309), or Ian Machray, Partner in our Employment Team (0118 951 6225), a call to discuss without delay.

Tom Maple, July 2016

This represents a mere snapshot of the law as at July 2016. It is for information only and is not intended to be, nor does it amount to, legal advice and therefore should not be relied upon as such.