New joiners bringing confidential information – managing the risks for recruiting employers

Introduction

Employers whose new recruits bring with them potentially confidential information from their prior employment need to be mindful of the risks of claims from an individual’s previous employer, not just on the basis of the express confidentiality terms of their employment contract but also by way of claims based on the equitable duty of confidence. The recent Court of Appeal decision in Travel Counsellors Ltd v Trailfinders Ltd provides a useful reminder of the need for employers to consider carefully how they deal with information provided to them by new employees.

Factual context

In this case two employees left Trailfinders and joined Travel Counsellors Limited (TCL) as franchisees. The employees had taken with them certain of Trailfinders’ confidential client information (which included customers’ names, contact details, passport numbers, frequent flyer numbers and details of past and provisional bookings). After their employment with Trailfinders had terminated, they had accessed Trailfinders’ client database to obtain further client information for the benefit of TCL. TCL encouraged new franchisees to bring clients’ contacts with them, and did not warn them that they might risk breaching their contractual obligations towards their former employers or their implied duties of confidentiality.

High Court decision

As we reported previously, the High Court decision in these proceedings was significant as it was the first case which considered the impact of the EU Trade Secrets Directive (the Directive) – which was implemented into English law in 2018 – and the interaction between the Directive and existing English common law principles.

In relation to the equitable duty of confidence, the High Court found that:

• The employees were in breach of implied terms in their contracts of employment and were in breach of equitable obligations of confidence owed to Trailfinders
• TCL was in breach of an equitable duty of confidence to Trailfinders.
• TCL appealed against these findings arguing, amongst other things, that the judge had applied the wrong legal test in holding that TCL owed an equitable obligation of confidence to Trailfinders in relation to the information provided to it by the two individuals.

The Court of Appeal

The Court of Appeal confirmed the following key points:

• An obligation of confidence will arise where a recipient of the information knows, or has notice, that the information is being disclosed in breach of confidence.
• Whether a person has notice is to be objectively assessed by reference to a “reasonable person standing in the position of the recipient”.
• If, in the particular circumstances, a reasonable person would have made enquiries as to whether the information was confidential, but the recipient of the information does not, then there will be an equitable duty of confidence.
• Whether a reasonable person would make enquiries, and, if so, what enquiries, is inevitably context- and fact-dependent.

In this case, TCL was on notice that at least some of the information it received from these two individuals was, or might be, confidential – for example, one of them had brought 313 customer records with them to TCL, and TCL should have made enquiries to determine where that information had come from.

Practical steps for employers

From a practical perspective, employers need to ensure that those engaged in the recruitment and onboarding of employees who may bring confidential information with them are aware of the legal risks, not just with regard to new recruits’ express contractual obligations by way of confidentiality and restrictive covenant obligations but also the risk of an equitable duty of confidence like that brought in Trailfinders.

In addition to increasing managers’ general awareness of the risks in this context, employers can seek to manage their risk and protect their position by:

• Giving prospective employees specific instructions at an early stage in the recruitment process, repeated when they join the new employer, that they should not provide or bring information with them that is or might be confidential to their previous employer without its consent.
• Including in employees’ offer documents and/or employment contracts an undertaking from that employee that he or she is not in breach, and will not breach, any obligations he or she owes to his or her former employer.
• Reinforcing to recruits the point that the unauthorised removal and use of an employer’s client details may constitute a criminal offence if it relates to personal data such as customer records. Section 170 of the Data Protection Act 2018 provides that it is an offence knowingly or recklessly to obtain or disclose personal data without the consent of the data controller. Prosecutions are not unheard of.
• Ensuring that, if they receive any information that they think might be confidential to an employee’s former employer, they take steps to investigate the source of that information and remedy the situation if it proves to be problematic.