Employment Update June 2009: Confidentiality

10 June 2009

Employment Group

Consultants cannot misuse trade secrets

In Vestergaard Frandsen A/S v Bestnet Europe Ltd the High Court considered the case of a consultant who, after doing research work for the claimant company, had then gone to do similar work for a rival. The claimant company argued that, even though he was no longer under contract to them, he should be restrained by court order from misuse of their confidential information. It was asking for a court order wide enough to prevent the manufacture and sale of his new employer’s current product.
The judgment considers the legal duty of confidentiality which can arise not only in an employment relationship, but wherever one party imparts confidential information to another ‘in circumstances importing an obligation of confidence’.

An employee is always bound not to misuse confidential information belonging to their employer. Following a 1987 Court of Appeal decision (Faccenda Chicken v Fowler), an employee who leaves his employment will still be under a legal obligation not to misuse any confidential information that amounts to a ‘trade secret’.

In this case, it was accepted by both parties that the self-employed consultant had the same status as a senior employee, so the Court decided that the principles set out in Faccenda Chicken applied to him.

Points to note -

  • In this case there was a confidentiality clause in the consultant’s written contract. However, the judge said that, given the nature of his involvement in research and development work, it would in any event be an implied term of any contract. 

  • Furthermore, even if there was no contract of any kind (employee or self-employed), there would be an equitable obligation on a person in the position of this consultant to keep the trade secret confidential if (as happened in this case) he then went to work for a major competitor.

  • This continuing legal obligation to keep trade secrets confidential will only be upheld by the courts to the extent that it is reasonable to do so. If an employer has trade secrets that departing employees or contractors will inevitably carry away with them in their heads (as opposed to formulae and recipes that can be handed back), the employer should put sensible restrictive covenants into their contracts instead, restricting their field of activity for a reasonable period after the engagement ends. The courts will uphold such restrictive covenants if they are reasonable in extent and duration and the employer had a genuine business interest to protect. They need to be tailored to the specific circumstances. We can advise further, as required.