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Beware new employees bringing 'gifts' from their old employer – you could be in breach of confidence

Posted on 5 February 2021

The Court of Appeal has dismissed Travel Counsellors Limited's (TCL) appeal against a decision in favour of Trailfinders Ltd that TCL was in breach of an obligation of confidence owed to Trailfinders in respect of information provided to it by new employees who'd previously worked for Trailfinders. Arnold LJ held that TCL owed an obligation of confidence to Trailfinders in respect of that information, and that any reasonable person would have made enquiries into the information provided (names, contact details and other information about Trailfinders' customers) before going on to use it, which TCL did not.

This case highlights that it is not only ex-employees who may be liable for breach of confidence when using confidential information acquired from their old employer. Their new employer can also be liable if it was reasonable for them to make enquiries as to the nature of the relevant information and they failed to do so and went on to use that information. In this case, the quantity of client information disclosed (e.g., a list of 313 contacts) supported the conclusion that TCL was on notice that at least some of the information was likely to be confidential to Trailfinders.

Background

At trial, the Judge held that two former Trailfinders employees were in breach of their employment contracts, as well as an equitable obligation of confidence owed to Trailfinders, when they left Trailfinders to join TCL. The employees took with them client information including names, contact details (including email addresses) and other client information, which were found to be confidential. HHJ Hacon also held that TCL was likewise under an obligation of confidence to Trailfinders once it received that information which it ought to have known was fairly and reasonably regarded as confidential.

Interestingly, HHJ Hacon considered two issues that did not go on to feature in the Court of Appeal decision. First, he looked at the provisions of the Trade Secrets Directive 2016/943 which, he said, "shines an occasional light" on existing principles relating to protection of confidential information. For example, he highlighted the broad definition contained in the Directive of what amounts to a 'trade secret'. However, on appeal, Arnold LJ held that, as the facts in the case pre-dated the Trade Secrets Directive, the Directive did not apply and so the Court did not consider it further. HHJ Hacon also considered the case of Faccenda Chicken Ltd v Fowler which sets out three different classes of information which employees can acquire during the course of their employment. Whilst the Court of Appeal's decision may have been seen as an opportunity to consider the three categories of information in Faccenda, the Court did not have to address any potential shift from this categorisation.

Appeal Decision

TCL appealed on three grounds:

  1. TCL argued the Judge applied the wrong legal test in holding that TCL owed an obligation of confidence to Trailfinders:
    • TCL argued that an equitable obligation only arose if TCL knew or had notice that the information was confidential. Arnold LJ held that there is no reason why an obligation of confidence should only arise if the recipient is on notice that all the information received is likely to be confidential. A reasonable person in TCL's position would have made enquiries (since it was clear that there was too much information carried over from the former employees for it to have been solely carried in their heads) and, if they had, they would have discovered that some of the information came from Trailfinders' database and was therefore confidential. The position may be different, however, where the claim is for accessory liability for misuse by another person, where actual knowledge may be required.
  2. TCL argued the Judge's approach to the question of what it ought to have understood about the information provided to it was wrong:
    • TCL argued that HHJ Hacon's decision that the information was confidential was inconsistent with his finding that Trailfinders and TCL had overlapping clients (i.e. TCL already had some of the same clients on their database). Arnold LJ held there was no inconsistency because of the other facts and matters in the case which demonstrated that TCL knew or ought to have known that the information was confidential and make the necessary enquiries.
  3. TCL argued the Judge erred in holding it liable for breach of confidence despite making no findings that it had misused any confidential information:
    • TCL decided not pursue this ground, but explained that it was concerned that the Judge had made a general finding that it had used the confidential information "for the benefit of its business" which left open the question of the extent of such use (which would affect the amount of damages payable by TCL). This issue has been left to be addressed as part of the inquiry as to damages.

Comments

There had been some anticipation regarding this decision, with the potential for clarification over the impact of the Trade Secrets Directive, and a potential review of Faccenda Chicken. Whilst those aspects did not feature, however, what we can take from this decision is that businesses should exercise caution as to the information received from new employees and in particular consider whether it would be reasonable to make enquiries as to whether such information may be confidential. Otherwise, they may find themselves liable for breaching a duty of confidence.

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