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Legal Options Available for Employers to Protect Confidential Information

The nature of an employment relationship is contractual; employees offer services under a contract in exchange for remuneration. Employers expose employees to proprietary information, which drives the company’s success. Unfortunately, as all agreements do, employment relationships may be terminated through several options: redundancy, summary dismissal, or even poaching by a competitor. 

Consequently, employees may use/rely on confidential information obtained during the subsistence of the relationship to the detriment of the former employer. Thus, an employer must ensure that third parties do not misappropriate their confidential information to its expense. Today’s post seeks to evaluate the different legal measures that employers can deploy during, and after the subsistence of the employment to ensure the protection of confidential information.

Define what constitutes confidential information

The basic rule of contract law is that courts will seek to enforce the intention of the parties. Therefore, parties should ensure that they draft contracts that are clear in substance and scope. Employers must define confidential information in any agreement and place the corresponding duty on employees not to disclose such information. The Court in Coco v Clarke noted that for information to be sensitive, it must have a necessary quality of confidence, revealed under circumstances that impart an obligation of trust, and its unauthorized use is detrimental to the owner of the information. 

It is not enough to oblige employees not to disclose confidential information; they must define what consists of sensitive information

It is not enough to oblige employees not to disclose confidential information; they must define what consists of sensitive information. For example, in Credit Reference Bureau Holdings Limited v Steven Kunyiha [2017] eKLR, the Court did not enforce a restraint clause as the applicant did not demonstrate the confidential information obtained by the respondent and how the former would utilize it to its disadvantage.

Only disclose information on a need to know basis.

Businesses have different categories of confidential information. Thus, employers should disclose information based on employees’ needs. It is not enough to communicate strategy to an intern who is only there for two weeks. Thus, companies should have a clear structure on who can receive a particular set of information.

Enter NDA’s with employees

A common practice these days for employers is to enter into non-disclosure agreements with (NDA’s) with employees. NDAs are also known as confidentiality agreements. In NDAs, the employer undertakes to reveal confidential information to an employee in exchange for secrecy. An employer can enforce the NDA against the recipient of the data (the employee), a subsequent third-party recipient of that information even when that third party did not know its confidential nature when it received the information but subsequently becomes aware of it.

As with any contract, the terms should be clear and concise.

Utilize trade secret protection

trade secret protects a specific form of confidential information that is commercially valuable and treated as a secret. Examples of the trade secrets include the Cocacola┬« recipe, the Google┬« Search Algorithm, among others.

Trade secrets protect commercially valuable confidential information.

Kenya does not have a specific law governing trade secrets. However, international law, that is, The Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), protects trade secrets. TRIPS protects trade secrets if the confidential information is readily available to parties that deal with it; parties have taken reasonable steps to keep that information confidential and must have commercial value. TRIPS applies in Kenya under Article 2(5&6) of the Constitution, which allows for the application of international law in Kenya.

TRIPS does not specify how to enforce trade secrets. Thus, in practice, parties enter into NDAs to protect their trade secrets. Contract law governs the transactions. Trade secrets do not have a finite period of protection and may continue to apply unless the parties willfully disclose the information or leaks at neither fault of the parties. They also do not require any form of registration. For example, Tesla obtained a settlement against a former employee for theft of confidential information. The Court ordered the employee to pay $100,000 to Tesla.

Trade secret protection will protect the employer’s commercially sensitive information by providing it with an indefinite protection period.

Utilize restraint clauses

Perhaps the most common practice used in the protection of proprietary information is the utilization of restraint clauses. They take the form of either none-solicitation or non-compete terms. None-compete provisions prohibit the employee from leaving employment and engaging in a business that competes with the employer. On the other hand, non-solicitation clauses forbid the employee from soliciting the former boss’s clients or employees. 

Generally, under common law and statute, non-compete clauses are valid and enforceable unless they are unreasonable. Practically, for a Court to enforce a restraint, it should be reasonable regarding the nature of the profession, business or the occupation concerned, the period, the area within which it will apply, all circumstances of the case, and it is not detrimental to the public interest. 

Consequently, a restraint that bars the employee from seeking employment in the whole of Kenya for two years is invalid. When Courts seek to enforce restraint clauses, they will be protecting employers from the misuse of confidential information. However, due to the pertinent unemployment issues in the country, Courts tend to be pro-employees. For example, in LG Electronics Africa Logistics, Fze v Charles Kimari, the Court did not enforce a restraint clause because the employee had already begun working for a competitor. As such, implementing the provision would subject the employee to loss of employment without a guarantee of re-employment. The Court stated that it would be against public policy for such a thing to happen in a country like Kenya, “where unemployment is soaring every day.”

Despite the Courts’ decisions, employers can utilize restraint clauses that have a specified restricted activity, have a defined customer area, and have a reasonable limitation period. Restraint clauses will allow the employer to prohibit the employee from engaging in activities that utilize its strategy to its disadvantage.

What about prospective employers?

Potential employers who seek to involve the services of an employee who has left a company, besides conducting character and academic due diligence on the employee, should do the following as outlined below.

Evaluate the restraint clauses

To avoid any future litigation, employers should consult their legal team before engaging the employee. They should evaluate the effectiveness of the clauses. Some employers may have drafted iron-clad provisions that may be enforceable in a Court of law, which means they may not rely on ambiguity to frustrate them. As such, such they can attempt the following:

Some employers may have drafted iron-clad provisions that may be enforceable in a Court of law, which means they may not rely on ambiguity to frustrate them.

Obtain consent from the previous employer

In this case, the prospective employer may approach the former employer and negotiate on specific terms of engagement. In this, the employees undertake not to solicit business or utilize confidential information to the detriment of the former employer. Furthermore, the previous employer must agree not to sue the prospective employer and employees unless they breach the terms of the engagement.

Hold-off engaging the services of the employee until the post-termination period lapses

In instances where the former employer withholds consent, the prospective employer can withhold engaging the employees until the restraint period is over. Holding off protects not only the employer but also the employees from future litigation.

In conclusion, employees will always come and go. As an employer, you need to utilize their services and derive benefits while ensuring that you protect commercially sensitive information. Consequently, unless an employer employs mechanisms that exist both in law and in the IT world, employers will lose a lot to their competitors.

Apologies

I had promised an article on franchising operations from a CEO’s perspective. I have had to hold that off for the moment, but I will publish it soon.

Coming up next week

A guest contribution from one of my readers

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