The protection of confidential information


A number of decisions in the High Court and Court of Appeal over the last 18 months or so have highlighted the trend for the Courts to be more sympathetic to employers’ needs when facing threats of unlawful or prohibited competition from ex employees. This article reports on two decisions, which were focused on the protection of confidential information: Thomas -v- Farr Plc [2007] ICR 932 (Court of Appeal) and PennWell Publishing (UK) Limited -v- Ornstein, Isles and Others [2007] IRLR 700.

Confidential information: the background

Breach of confidence is one of the oldest equitable causes of action, dating back to The Statute of Uses 1535. The area is still evolving today, with celebrity cases such as the Naomi Campbell and Michael Douglas cases contributing to the ongoing development of the law. The classic statement of the classes of information is still Faccenda Chicken [1986] 1 ALL ER 617, which established where there is no contractual protection for information, it falls into the following three classes:

  1. Information which is trivial or available to the public and so cannot be kept confidential;

  2. Confidential information, which becomes part of an employee’s skill and knowledge. This category is protected during employment, but cannot be protected after employment unless there is an appropriate confidential information clause in the employee’s contract.

  3. Truly confidential information, or trade secrets. These are protected during and after employment, even if there is no express agreement.

Unfortunately, these categories have been fertile ground for debate, which the Court of Appeal acknowledged in LancashireFires -v- Lyons [1996] IRLR 113; “the distinction between information in… class 2 and… class 3 may often on the facts be very hard to draw.” The Court of Appeal’s eventual solution to this in A T Poeton Limited -v- Horton [2000] ICR 1208 was to encourage the use of clear contractual clauses, so that both employers and employees have less doubt over where the distinction between general know how & skill and knowledge, compared to truly confidential information, actually is. This was not a complete solution, however, as it created two new problems. Firstly, there is always the difficulty of drafting contract clauses to be accurate enough to cover all the necessary information, without making them so wide that they become difficult to enforce. Secondly, in attempting to protect category 2 information after employment, the clauses qualify as post-employment restrictions and the Courts will scrutinise whether they go beyond what can legitimately protected as confidential, due to public policy grounds.

Consequently, employees who have removed confidential information have regularly argued that the clauses forbidding their misconduct were unenforceable as they were either too wide or went beyond legitimate limits. In Thomas -v- Farr, the Court of Appeal strongly indicated that they are not willing to listen to those arguments anymore.

Thomas v Farr

The Court of Appeal enforced a 12 month non-compete covenant against the Managing Director of Farr Plc, who are a firm of insurance brokers specialising in social housing insurance for housing associations. Thomas was unhappy about the effects of a proposed restructure on his position as MD and resigned to take up a position with a new entrant to the market. The move was in breach of his employment contract, particularly the non-compete, non-solicitation and confidentiality clauses. In the Court of Appeal the arguments focused on the confidential information issues, because these were the justification for the 12 month non-compete clause.

Thomas argued that although he agreed he had received information which he would regard as confidential, he did not think he had any information which would really be of any continuing interest or relevance to a competitor. It was argued that the information which Farr said was confidential was too vague and general to enable the Court to identify any specific information which could fairly be regarded as a separate body of knowledge, confidential to Farr. Therefore, Thomas said, the confidentiality clause was too wide and went beyond Farr’s needs. The Court of Appeal rejected this, making the following two crucial findings:

  1. An employer must be able to describe the protected information in sufficient detail to allow the Court to decide whether it should be protected, but no more specially detailed investigation needs to take place.

  2. If the employer has cleared stage 1, then the Court will protect the information specified in the relevant clause. They said: “it is no argument… that it may be very difficult for either the employer or the employee to know exactly where the line may lie between information which remains confidential after the end of the employment and the information which does not. The fact that the distinction can be very hard to draw may support the reasonableness of a non-competition clause.”

In turn, the Court found where there might be serious difficulties in precisely identifying what information is confidential, a non-compete clause might be the most satisfactory way of dealing with the issue. On that basis, they upheld the non-compete clause against Thomas.

The non compete clause was also upheld because the Court recognised the problem that any solicitation of clients was unlikely to be done by Thomas himself. He made it clear in his evidence that he did not deal directly with clients. It was found that Thomas had sensitive information, which would be helpful to a competitor in devising a strategy for seeking to undercut Farr, but the client negotiation was likely to be done by staff below him. In those circumstances, the practical problems of policing a non-solicitation clause justified the use of the non-compete clause.

Given that it is a favourite tactic of ex-employees to try to put their ex-employer off legal action, by insisting they are put to proof that the information they have taken can be clearly identified and was confidential, this case is significant because it clearly reduces the value of that tactic in future.

The importance of the case is also seen in the fact that it is a clear message that the Court will protect businesses that bother to try to protect their information with clear contracts.

Businesses who do not bother to try to protect their information through appropriate clauses are, however, left to fight their way through the problems that have littered the history of this area.

PennWell v Isles

In this case, Isles, who was a journalist, imported all of his personal contacts onto the employers’ computer system and they became part of the database. As these included a number of personal contacts, Isles assumed that the list was his property and when he left PennWell he asked the IT department to give him a disc with the contacts on it, which they did.

After PennWell objected to this, the case ended up in the High Court, where it was found that because Isles had effectively integrated his contacts into the employer’s system, they all became the property of PennWell and Isles was not allowed to remove them or to use the contact list after he left.

It is clear from this case that contacts which are added to employer’s systems become the employer’s property, even if they are only stored in generic programmes such as Microsoft Outlook. From a legal perspective, every time new names are added, technically this creates a new database which has specific legal protection. As a result of this case, employers might want to make sure that their email policies are clear in telling staff that they need to maintain their own private list of personal contacts, otherwise they will not be permitted to remove them when they leave.