Protection of an employer's confidential information

by Hong Tran, senior associate, Employment and Employee Benefits Group, Johnson Stokes & Master

Article exclusively contributed by Johnson Stokes & Master

In mid-2006, four employees left Kuoni Travel (China) Limited, a tour operator with numerous branches in Hong Kong and joined a competitor, Plan-Travel Limited (PTL). Following their departure, Kuoni discovered that they had misused confidential information to divert business and clients to PTL.

Initially Kuoni asked PTL to confirm that they would not condone this conduct. Allegedly, the answer received was that the four employees had been hired as "package deal", which entailed a promise to bring new business to PTL.

Therefore, on 13 June 2006, Kuoni began proceedings against the four individuals and applied for an interlocutory injunction to restrain them from, among other things, breaching their duties and contracts of employment with Kuoni. At the subsequent hearing, the four gave various undertakings. These included one not to induce a breach between Kuoni and its customers nor to make use of or disclose confidential information relating to bookings.

However, they refused to give an undertaking not to use or disclose "client data". This was defined to include the identity of Kuoni's customers and any information concerning names, contact details, special requirements, prices paid and invoices.

The central issue for the Court to consider was whether the client data amounted to a "trade secret" or was of a sufficiently high degree of confidentiality to amount to a trade secret which Kuoni had a legitimate interest to protect. If not, then the information could not be protected by a Court order. To be a trade secret or the equivalent of that, the Court said the information had to be:
(1) used in a trade or business
(2) confidential i.e. not already in the public domain
(3) easily isolated from other information which the employee is free to use so that any man of average intelligence and honesty would think it improper to put the information at the disposal of his new employer
(4) liable to cause real or significant harm to the owner, if disclosed to a competitor
(5) such that the owner had limited its dissemination or at least not encouraged or permitted its widespread publication, or had otherwise impressed upon the employee the confidentiality of the information.

The Court found that the requirements in the first and fourth items above were clearly met. Therefore, the dispute centred on the other requirements. After due consideration, the Court found they too were met since Kuoni had clearly impressed upon employees the confidential nature of the information by means of a detailed provision in their staff manual.

In respect of client data stored in the computer network, the Court found that this was accessible only with the use of a password. Therefore, it was "clearly separable from non-confidential information". The Court held that, in light of the security system Kuoni used to protect its data, as well as the provisions in the staff handbook, a person of average intelligence and honesty would think it improper to use the client data for the benefit of his or her new employer. Accordingly, in respect of the client data, Kuoni was entitled to protection.

The Court also had to determine whether there were grounds for an injunction. For this, Kuoni needed to show that:

  • there was a serious question and that the claim was not frivolous or vexatious
  • the balance of convenience was that the Court should order an injunction.

After analysing the evidence, the Court found that the claim against the employees was a serious matter. In considering whether damages were an adequate remedy, the Court found that, even if Kuoni was successful at trial, any award of damages would be inadequate compensation, if the interlocutory injunction was refused. The reason was that Kuoni would be faced with "what appears to be a near impossible task to quantify its damages".

In contrast, if PTL was wrongly restrained from doing what it was entitled to do, there was nothing to suggest that an award of damages would not be adequate, or that Kuoni would not be good for its undertaking to pay. As result, the Court granted an interlocutory injunction against each of the defendants.

Q & A on post-termination restrictive covenants
Q1 Does this mean I am not entitled to use any confidential information belonging to my previous employer once I leave?
A1 No. There are different types of confidential information and only that which is a trade secret or equivalent to such can be protected.

Q2 My contract does not contain a clause saying I cannot use my employer's confidential information after termination of employment. Does this mean I am free to use this confidential information after leaving the company?
A2 No. There is implied in every contract of employment a duty not to misuse the employer's confidential information. So, the fact that there is no express confidentiality clause does not mean you have no duty of confidentiality. You will still be bound not to misuse your former employer's trade secrets after the termination of employment.

Taken from Career Times 29 December 2006

(Last review date: 23 August 2013)

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