Watch out! New employees could lead to a breach of confidence claim against you
A new employee joins a business. They have lots of new ideas and suggestions. Sounds great but might you be at risk? To put it another way, where is the line between creativity and confidentiality?
Trailfinders Ltd v Travel Counsellors Ltd
There was a rare Court of Appeal judgment on confidential information on 19 January 2021. The Court upheld a decision from the English IP Enterprise Court (IPEC) in a dispute between travel agent Trailfinders Ltd ("Trailfinders") and its competitor Travel Counsellors Ltd ("TCL"), which had hired several former Trailfinders employees. This is a classic situation which faces every industry, including retail. The decision may impose a greater burden on companies to check whether information they receive is confidential. At first instance, the judge found that the former employees had acted in breach of their contracts of employment and in breach of equitable obligations of confidence to Trailfinders, and that TCL had acted in breach of an equitable obligation of confidence. TCL tried to appeal on the grounds that:
the judge applied the wrong legal test in holding that TCL owed an obligation of confidence to Trailfinders in respect of confidential information received from the former employees;
the judge’s approach to the question of what TCL ought to have understood about the information provided to it was wrong and inconsistent with his other conclusions; and
the judge erred in holding TCL liable for breach of confidence.
The Court of Appeal rejected each of these grounds. Lord Justice Arnold said a “reasonable person” test should be applied. This means that if:
a reasonable person
in the position of the recipient
would in the circumstances be aware that the information may be confidential
then the reasonable person’s response may be to make enquiries."
The type of enquiries depends on the facts but...
if no enquiries are made at all "then an obligation of confidentiality will arise.”
What does this mean?
You need to ask questions if you have any suspicion that the information you have been provided with is confidential (whether from a new employee or otherwise).
In today’s mobile economy, it is increasingly common for employees to move between competitors, which makes disputes over confidentiality more likely to occur. Following this case, all businesses should make sure they take steps to ascertain whether any information that new employees bring with them is confidential. The implications of not doing so could be serious.