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02 June 2020
The IP Enterprise Court recently considered the impact of the EU Trade Secrets Directive (2016/943/EC) on the law of breach of confidence – in particular, in the context of ex-employees who sought to franchise their services.
The law setting out what type of information can be taken by an ex-employee to a new role was established in the well-known case Faccenda Chicken v Fowler ( Ch 117), which confirmed as follows:
In this case, Mr La Gette and Mr Bishop left Trailfinders to become franchisee travel consultants for TCL. In the course of doing so, they took a number of client details with them (eg, contact information and details of previous trips) – both during and after their employment. Trailfinders sued TCL and La Gette and Bishop for breach of confidence.
Impact of EU Trade Secrets Directive
This was the first UK case to consider the impact of the EU Trade Secrets Directive, which was implemented in the United Kingdom through the Trade Secrets (Enforcement, etc) Regulations 2018 (SI 2018/597).
Justice Hacon confirmed that "the substantive principles governing the protection of confidential information under English law are unaffected by the Directive". However, he also commented that "the Directive shines an occasional light on those principles". In particular, the definition of 'trade secret' in Article 2(1) of the directive can be used as a guide in distinguishing between Class 1 and Class 2 information.
The client details taken by La Gette and Bishop constituted Class 2 information. The fact that the protection placed over this information by Trailfinders "may not have been as rigorous as it should have been" did not preclude the information from being classified as confidential as Trailfinders had clearly taken steps to ensure that the client information was not openly available.
The court found that the ex-employees' manual copying of contact details from the Trailfinders' system (which had taken place during their employment) was both a contractual and equitable breach of confidence. It was not a defence for La Gette and Bishop to argue that this information had also been publicly available.
However, the fact that both La Gette and Bishop had also accessed a Trailfinders database to access client information after their employment had terminated was not found to be a breach of confidence in respect of La Gette, as he had obtained the relevant clients' permissions to access this information and put sufficient evidence forward to this effect. On the other hand, as Bishop had been unable to provide the court with satisfactory evidence of his conversations with clients (in which he had purportedly obtained their permission to view their information on the database), his accessing of the database was found to be an equitable breach of confidence.
The court found that TCL had been under an equitable duty of confidence to Trailfinders as it had received information from La Gette and Bishop which it had known or ought to have known was fairly and reasonably regarded as confidential. TCL had breached this duty by using this information for the benefit of its business.
In deciding that TCL was subject to an equitable duty of confidence, the court relied on evidence of TCL's franchising model, which encouraged potential franchisees to bring across their old customer contact lists, as well as TCL's own franchise agreements with La Gette and Bishop (which clearly treated TCL's own equivalent information as confidential). However, TCL was not vicariously liable for the acts of La Gette and Bishop as its franchising model did not suggest an employer-employee or agent-principal relationship.
This case confirms the limited impact of the EU Trade Secrets Directive on the pre-existing law on breach of confidence. However, it also indicates that the directive can be useful in helping to tease out the distinctions between confidential and non-confidential information.
This case also highlights the need for employers to take adequate and appropriate steps to ascertain whether sensitive information brought across by new employees (eg, client lists) is confidential in nature in order to avoid being subject to an equitable duty of confidence. It will be difficult to negate the existence of such a duty where an employer treats its own equivalent information as confidential or where an employer – despite encouraging new employees to bring across potentially confidential information – does not specifically make enquiries of a new employee about such information (or at least warn them about the risks of breach of confidence).
Franchisors may be particularly at risk in this regard. Individuals often pursue a career in the franchise sector, during which time they will work with a number of different systems. In addition, the sector trend for more units through fewer operators has given rise to the multi-unit, multi-brand operator, which may have porous internal walls when it comes to protecting franchisor confidential information. Franchisors or operators may expressly or tacitly require or encourage potential franchisees or employees to bring across client details, contact information and system information. Such parties are advised to review their advertising material, franchise agreements and practices carefully to ensure that these do not actively encourage breach of confidence. They should also ensure that they have procedures in place to warn new employees or franchisees of the potential legal risks of bringing across client information and other forms of confidential information.
For further information on this topic please contact Natasha Rao or Gordon Drakes at Fieldfisher LLP by telephone (+44 20 7861 4000) or email (firstname.lastname@example.org or email@example.com). The Fieldfisher LLP website can be accessed at www.fieldfisher.com.
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