Use of Confidential Information - A Warning to Employers

Following the recent High Court decision in Crowson Fabrics Limited v Ryder & Ors the position as to when an employee is considered to be in breach of their duties to their former employer has been reviewed.

The case involved two employees of a leading producer, designer and supplier of home furnishings who left the company and set up a rival company in direct competition with their former employer. They took with them documents containing contact details of suppliers, agents and also information as to transactions with which they had been involved during their employment. The employees' contracts of employment contained no express restrictions or obligations on the employees after the end of their employment with the company.

In particular it was alleged by the employer that the employees: (1) retained information contained within the employer's 'Supplier's Bible' containing details of the source of the employer's products; (2) retained customer lists; (3) retained the employer's worldwide sales database; and (4) created a sales forecast document for the new rival company which the employees had based solely on the employer's sales for two previous years.

The employer brought a claim against the employees arguing that they had breached their obligations to the employer: (1) by taking confidential business information; (2) by using the company's facilities to set up their rival business; and (3) by extracting large amounts of information from the company's database and transferring it onto their new computer system and as a result were in breach of the employer's database rights.

The Court decided that the employees' use of information was illegitimate. In doing so it concluded:

An employer could not simply label information as confidential and expect it to immediately be confidential as a result;
It was impossible to prevent an ex-employer from using the skills and expertise he/she had acquired whilst employed;
However, where an employee deliberately copies or memorises information for use after leaving his employment this was classed as 'illegitimate use' and steps could be taken by the employer to prevent this;
In general, an employee did not owe an employer 'fiduciary' duties and only where an employee was sufficiently senior would such duties arise. In this case, the more senior of the two employees was held to be in breach of his fiduciary duty by creating the rival business and taking with him the various documents for use illegitimately to compete with his former employer;
Employees do owe a duty of fidelity to their employers, however they will not be required to place themselves in a position where they have to act solely in the interests of their employer;
It was no defence on the part of the two employees that the relevant information was available in the public domain because of their 'illegitimate use' in deliberately copying and memorising that information; and
Finally, it was held that the two employees were in breach of the employer's database rights because the employer had not consented to the extraction and transfer of that information from that database.

The implications for the fashion, and other industries, are potentially wide ranging. For instance, so far as is possible in view of this decision extra care must be taken to ensure that employment contracts contain suitable provisions to prevent employees using information they have acquired during their employment after they have left. Were it not for the fact that the two employees in this case deliberately copied and memorised information for use in their rival business after they left the company, such use would not necessarily be classed as having been illegitimate.