Employee confidentiality is a subject frequently taken for granted. Previously, I wrote of confidentiality as an often misunderstood area of the law and considered some basic, yet largely unknown, general principles. One aspect not covered previously was employee confidentiality. Just as with confidentiality generally, circumstances define whether information obtained by the employee during the course of his employment is to be treated confidentially. The law does not assume such information is confidential without an inquiry into the background of any protection.
The relationship between the employer and the employee is contractual. The existence of a contract will not prevent the concurrent application of the equitable doctrine of confidence. The scope of the employee’s duty of confidence, whether in contract or equity, will be governed by the employment contract, whether expressly or by necessary implication, for as long as the parties remain bound by it. Where the employment contract is absent an express confidentiality term, a contractual duty of confidentiality will be implied, and the scope of that duty will be the same, whether viewed as an implied term or an equitable duty.
The law draws a distinction between the duties of confidentiality owed by the employee during the period of the employment contract and any duties which may continue after the employment contract has ended. The distinction is intended to reflect the nature of the employment contract and a fundamental principle that the former employee holds a legitimate interest in being able to use his skills and knowledge for his own benefit or the benefit of another without the imposition of unduly onerous or impractical restraints in favour of his former employer.
Implied obligations during employment
The law will imply into any employment contract a general obligation on the part of the employee not to use or disclose confidential information or materials acquired in his capacity as an employee, except for the purposes of his employment. The obligation is subject to qualifications, known as protected disclosures. Protected disclosures include that:
- a criminal offence has been committed, is being committed, or is likely to be committed;
- a person has failed, is failing, or is likely to fail to comply with any legal obligation to which he is subject;
- a miscarriage of justice has occurred, is occurring, or is likely to occur;
- the health or safety of any individual has been, is being, or is likely to be endangered;
- the environment has been, is being, or is likely to be damaged; or
- information tending to show any matter falling within any one of the preceding paragraphs has been, is being, or is likely to be deliberately concealed.
Any provision in an agreement between the employer and the employee, which purports to prevent the employee from making a protected disclosure is to that extent void. The stockpiling or banking of confidential information by the employee in anticipation of litigation with his employer is not justified and will be treated as a breach of confidentiality.
Implied obligations after employment
Any confidentiality obligations that continue after the employment contract has ended are seen, in the absence of any express contractual provision, as a matter of implied contract. Protection, if any, is a matter of fact and information is categorised. A distinction is made between information that forms part of the employee’s general stock of knowledge and information that is more personal to the employer.
The underlying reason for the distinction between different types of information is intended to reflect the fundamental principle. Insofar as the knowledge gained has become part of the employee’s general skill and knowledge, he owes no duty of confidence to his former employer after the employment contract has ended. An exception to this general rule is that after the employment contract has ended, the former employee may be prevented from taking advantage of a breach of the implied duty that occurred during the term of his employment.
Otherwise, such information is distinguished from particular information including trade secrets or items of equivalent confidentiality.
Trade secrets are exceptional and will be protected both during the employment contract and following its termination, even if there is no express provision within the employment contract. There will be no time limitation on the protection. There is no universal formula for determining what amounts to a trade secret or an item of equivalent confidentiality, whether in an employment or R&D context. As with implied obligations post-employment, whether information is a trade secret or an item of equivalent confidentiality is a matter of fact.
Trade secrets and confidential information may have a limited shelf-life following which they will cease to be confidential. The limitation can occur for two reasons, namely the information has come into the public domain, such as inventions that are published or the information has become out-of-date, such as market-sensitive information including pricing levels, margins, and costs. Each case will be fact-specific, and the court will consider evidence that shows:
- how the information was designated and kept confidential;
- market practice;
- how disclosure in the public domain came about. Disclosure by the employee is unlikely to deprive confidential information of protection because of the principle that the employee should not be able to benefit from their own wrongdoing; and
- inherent ephemerality of the information, such as where the information changes very frequently.
As a general rule, the employer will want to protect its customer list from becoming known to competitors or potential competitors, and the employee will be under a duty during the term of his employment to treat such information as confidential. The employee will be in breach of his duty of confidentiality if he solicits his employer’s customers before his employment contract has ended. When the employment contract has ended, subject to the condition below and in the absence of a valid, meaning reasonable, non-solicitation covenant to the contrary, the former employee will be entitled to compete with his former employer.
The rule applies to knowledge of customers’ names and addresses the employee acquires, bona fide, during the ordinary course of his employment and extends to making contact with customers of his former employer, whose names he can recall because they have been learned during the ordinary course of employment and extends to permit the employee researching their contact details through publicly available information such as telephone directories, electoral rolls, and utilising the resources of the internet.
The rule is conditional and it does not give licence to the employee who intends to leave his employment and work in competition with his employer, whether for his own benefit or the benefit of another, to copy or commit to memory his employer’s customer list, with a view to using it for competitive purposes after he has left. Such action is unlawful and an injunction may be granted against the former employee requiring him to deliver up the list for destruction and restraining him from making use of the information obtained.
The prohibition against pursuing the former employer’s customers is entirely dependent upon there being an abuse on the part of the employee during the course of his employment, such that the abuse constitutes a breach of confidentiality. In the absence of such abuse, the former employee may approach as many of his former employer’s customers, including those customers of whom the employee has acquired no knowledge, without fear or consequence.
Termination for repudiatory breach
Where termination of employment occurs for a repudiatory breach by the employer, typically a wrongful dismissal, the employee is generally relieved from further performance of his own contractual obligations, including any post-employment restrictive covenants. Where all primary contractual obligations are ended by a termination for repudiatory breach, the parties may nonetheless be left in a relationship in which duties are owed by operation of other law rather than the employment contract. A repudiatory breach does not end the employee’s equitable duty in respect of trade secrets or items of equivalent confidentiality.