UK Employment Law\ Employer \ Enforcing Confidentiality
Protecting confidential information in a covenant.
An employer may need to make sure that when an agreement is made with an employee, details do not leak out. This is in order that business interests are not damaged by adverse media coverage and/or information getting into the hands of a competing business.
One way of doing this is by getting the employee to sign a restrictive covenant to protect trade secrets and confidential information. Typically, these will lay down terms that stop an ex-employee from divulging certain details for a certain time-period, and across a certain geographical area. The type of details that could be restricted may include: product pricing; customers’ addresses; future plans.
Employers need to be aware that is can be exceedingly difficult to enforce such agreements, because:
- they are only enforceable if they cover details no wider than is necessary;
- they are aimed at restricting competition;
- UK law does not allow employers to enforce them if the employee ended the contract because of wrongful dismissal.
The following case history is unusual because it deals with an issue with an independent contractor, restricting only confidential information.
A newspaper is sold a model’s story.
This case study concerns a famous model (who we shall know as C). The model took on a personal assistant (who we shall know as F). This person was not an employee but contracted independently for professional services. Both parties signed a confidentiality agreement in addition to the main contract for work. This outlined terms that no information about C’s work or home-life could be revealed without express written consent of C.
Three months later, relations between the two parties broke down. F claimed that C had violently assaulted her. F took this conduct to be repudiation of their contract and that the parties were discharged from all future obligations. F claimed that this included the obligations over confidential information. Not long after this, F was interviewed by a tabloid journalist and was paid £25,000. Just six months after F’s employment by the model, the newspaper published a story using her information. It exposed details of C’s personal life with her boyfriend and another man. The story also went into F’s claims about an alleged assault by C.
C took F to the High Court alleging she had breached the confidentiality agreement. The former personal assistant conceded that she had told the journalist about some details, but insisted that she was not restricted by the terms of a confidentiality agreement. F claimed that this was because the alleged assault was a repudiatory breach. The court was now looking at a claim of damages from C, as well as a counterclaim for damages from F.
C asked the High Court for a summary judgment in her favour since F had conceded that she had spoken with the journalist about some of the details in the article and that F had no prospect of a successful defence if the case went to trial. However, F then argued that there was a strong defence. She claimed that she could show how the alleged assault had taken place, thereby meaning that she was no longer held by the terms of the confidentiality agreement.
At this point, the judge granted the model a summary judgment. However, it was only on that part of the case that F had conceded. The judge then told the court that the rest of the claim should go to trial. F launched an appeal to a full judge of the High Court, arguing that the entire case should go to trial. For this stage, F relied upon two cases; General Billposting Co Ltd v Atkinson and Rock Refrigeration Ltd v Jones.
This case involved an employee who had been dismissed without notice and who wanted to avoid being bound by a restrictive covenant that stopped him from working with a competitor. It established that restrictive covenants do not survive the termination of an employment contract if the employer repudiates.
What had to be decided?
The High Court had to decide two issues;
- whether the General Billposting case extends beyond restraint of trade covenants to confidentiality covenants;
- whether it applies in cases of contracts for services;
- to what extent it applies in cases of contracts for services.
The judge stated that the courts in both test cases had not been asked to decide whether the principle established applied to confidential information covenants. This was because both only considered restricting the future ability to trade in competition with a previous employer. The judge did state that there were passages in Rock supporting a finding that F could not rely upon the General Billposting principle in order that she could claim that she was no longer bound by the confidentiality covenant.
In Rock Lord Justice Morritt had stated that the principle in General Billposting would not restrict an employer’s rights to property after a repudiatory breach. The High Court interpreted Morritt LJ’s approach to meaning that since confidential information was property belonging to the employer, the employer’s rights over it would survive the termination of contract.
The High Court also backed up its decision from the Rock judgment, stating that the principle in General Billposting accorded neither with current legal principles regarding the effects of acceptance of a repudiation, nor with the requirements of business efficacy.
The Court then stated that if the case in question had concerned a contract of employment, then the principle in General Billposting did not apply. The Court’s view was that there could be no reason for handing a wrongfully dismissed employee the former employer’s confidences. The Court stressed that former employees are protected from unfair and unreasonable covenants because the law always places the highest level of importance on the right of former employees to find a new job. Employees are also protected in cases where they have been wrongfully dismissed. The law also recognises that there is a certain amount of information that an employee has stored in his or her head, and that they cannot reasonably be prevented from taking that to a new employer. However, the Court stressed that an employee’s acceptance of the employer’s repudiatory breach cannot displace the employer’s confidential information rights.
The case in question, however, was about a contract for services. Therefore, the Court did not need to decide the claim according to the principle in General Billposting. It was clear that the obligations of confidence survived acceptance by the service provider of the repudiation by the client. So, in the Court’s opinion, F continued to be bound by her obligations even if she had accepted a repudiation of the contract. The decision was accordingly upheld.
The High Court also considered a claim by F that there was a public interest in the disclosure to the newspaper, and that it was protected by the Human Rights Act 1998. This argument was dismissed.
Comment.
The Court’s final decision dealt with a specific confidentiality clause. Thus, it did not have to decide whether a similar one would have been enforceable if F had been an employee working as an employee. However, the Judge made it clear that he would have come to the same decision if the former personal assistant had been an employee. In his view, there was no reason to treat employees and independent contractors differently.
Restrictive Covenants are complex and, although often contained in an employment contract, are often difficult to enforce. Because of this, it is best that you send us an enquiry so that you may be able to seek the help of an experienced solicitor.
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