A question of confidentiality

Employment lawyers have a great deal to thank Michael Douglas for.
Disclosure gave us an insight into sexual harassment in the workplace. Wall
Street illustrated the damage that can be done when a key employee leaves and
engages in competitive activity. And now his wedding to Catherine Zeta Jones
provides a masterclass on the law of confidence and privacy.

Before the couple’s wedding in 2000, OK! magazine struck a deal with the
couple to pay a large and undisclosed sum for exclusive rights for nine months
to publish wedding photographs. OK! asserted that rival magazine Hello had
offered three times the contractual sum but that the couple trusted OK! to
publish only the images they wanted.

On 20 November, two days after the wedding, Ms Zeta Jones warned OK! that
Hello was about to publish unauthorised photographs. The company obtained an
interim injunction but Hello appealed and on 23 November the Court of Appeal
discharged the injunction. Hello published its issue three days before OK! thus
spoiling completely its rival’s scoop.

The decision is of considerable significance. It illustrates:

– the common law’s capacity to develop established doctrines and apply them
to unprecedented situations;

– the growing importance of the law of privacy and its close relation, the
law of confidence;

n the importance of the Human Rights Act 1998 in relation both to
substantive rights, such as the right of privacy, and to the exercise of
discretion in deciding whether to grant an injunction. This is likely to
involve a balancing exercise between different rights under the European
Convention on Human Rights (incorporated into the HRA), particularly where the
right of freedom of expression is involved. Even where a claimed infringement
of a right is well-founded, this balancing act may mean that an injunction is
refused.

The developing law of confidence

The employer often has an exaggerated sense of what is confidential. Trade
secrets and confidential information are identifiable, objective knowledge
which form part of the employer’s stock-in-trade but do not include the
employee’s skill, experience, know-how and general knowledge.

The improbably named Faccenda Chicken Ltd v Fowler [1987] 1 Ch 117, case,
identifies three classes of information:

– Class 1 is trivial, or easily accessible information from public sources
and therefore not confidential;

– Class 2 is information which the employee must treat as confidential, but
which remains in his head becoming part of his own knowledge. He cannot use it
other than for his employer’s benefit during the contract of employment, but he
is free to do so after its termination;

– Class 3 is so confidential that, even if it is learned by heart, the
employee cannot lawfully use it for anyone’s benefit but the employer’s, even
after leaving that employment.

In distinguishing between Class 2 and Class 3, the test is whether a person
of ordinary honesty and intelligence would recognise the information as the
employer’s property, or as the employee’s own property to do with as he likes.
Applying the test requires examining the nature of the employment and the
information; whether the confidential nature of the information was impressed
on the employee; and whether the information could be easily isolated from that
which the employee was free to disclose.

Protecting confidential information

Garden leave may be appropriate where the employee has given notice of
resignation, and the employer believes that the employee intends to use
confidential information to compete with the employer on his own, or by joining
a competitor before expiry of the notice period. However, garden leave is
lawful only if the employer has a legitimate interest to protect (such as
confidential information) and for no longer than is reasonably necessary to
protect it (which may involve difficult questions as to its shelf-life).

Express restrictive covenant may state that the employee may not use or
disclose confidential information other than for his employer’s benefit, during
and after the employment, and frequently identifies items of confidential
information. Since an employee is under a duty of confidence towards the
employer irrespective of the express terms of the contract, it could be argued
that an express covenant adds nothing to the common law position. It is
certainly true that the mere mention relating to an item of information as
being confidential in such a clause cannot of itself make the information
confidential.

However, express confidentiality covenants have two potential advantages.
First, they impress on the employee that certain information is, or may be,
confidential. Second, certain judges appear to be of the view that a wider
range of information is to be treated as confidential for the purpose of an
express confidentiality covenant than under the implied duty of confidentiality.

Non-competition covenant The drawback of the restrictive covenant is the
difficulty an employer faces in policing the employee’s compliance. An employer
is likely to face formidable difficulties in establishing that an employee has
misused confidential information. It may be easier to keep the employee out of
the relevant market all together for a limited period through a non-competition
covenant.

The implied duty of confidence is a last resort, since the courts are
reluctant to stretch the implied duty of confidence if an employer has not
taken the trouble to incorporate an express restraint on the employee’s
post-termination activities.

The springboard principle is where confidential information has been used by
an employee in a competing business, but where the information is no longer
confidential because it has entered the public domain or is no longer available
to the employee. However, by his past misuse of the confidential information,
the employee has unlawfully gained a springboard or head start for his
competing business. There is controversy about springboard remedies and they
have not yet been fully explored by the courts.

Common problems

A number of problems arise in relation to enforcing the duty of confidence,
including a decision on how to plead the case. If the employer’s legal advisers
get this wrong it can have catastrophic consequences. One pitfall is the
temptation to plead confidentiality for a wide and general body of information.

For example, it might be claimed that "the claimant’s manufacturing
process" was confidential, or that "the defendant had knowledge of
the claimant’s confidential financial and other business affairs". Such a
plea is not always without reason. The matter is urgent, the claimant needs to
get an injunction at short notice, and it is more expedient to plead in general
terms, at least at the outset. However, it may be counter-productive if this
results in the court throwing the claim out all together.

The court could hold it to be an abuse of the process of law to give
particulars of information which is not truly confidential. It will not allow
an approach based even in part on wide and unsupportable claims of
confidentiality which could be used as an instrument of oppression or
harassment against a defendant, or to destroy an ex-employee’s ability to
obtain employment or a competitor’s ability to compete.

The wider the claims, the longer and more expensive the litigation.

The Human Rights Act 1998

The decision in Douglas v Hello! (2001 QB 967) highlights the importance of
the HRA in such cases. Section 12 applies where the court is considering
whether to grant any relief which might limit the right to freedom of
expression. Section 12(3) provides that there should be no restraint on
publication before trial unless the court is satisfied that the applicant is
likely to establish that publication should not be allowed. This may require
the court to anticipate how the balance might be struck between competing
Convention rights of the right to privacy and the right to freedom of
expression as it did here.

The Douglas case also demonstrates the importance of the principle that
injunction-seekers should have "clean hands". Lord Justice Brooke
said he was not sorry to refuse an interim injunction, because it appeared that
OK! had engaged in similar spoiling tactics directed at Hello in the past.

Finally, the case demonstrates the fluidity of the law. Adapting
well-established principles to a changing technological environment, coupled
with the impact of the Human Rights Act, means that this field is now ripe for
development under the influence of creative and ingenious arguments from
employment lawyers.

Paul Goulding is a QC at Blackstone Chambers.  This article is abridged from a paper presented to the Employment
Lawyer’s Association in December

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