Thursday, 23 February 2012

Restrictive Covenants and Confidential Information

[Thanks to Ed McFarlane of Deminos HR for preparing this case summary]

Should an employer get an injunction, based on a contractual confidentiality clause when there are no restrictive covenants - to prevent a former employee in possession of confidential information from working for the employer's competitor, or from using that information when it might harm the employer's interests?

No, says the Court of Appeal in
Caterpillar Logistics Services (UK) Ltd v Huesca de Crean, turning down the former employer's appeal against the refusal of an interim injunction and a strike-out of the claim by the High Court, but leaving some scope for fact-sensitive distinctions.

There were two main issues on appeal. The first was the Appellant's request for 'barring-out relief' - to prevent the employee from working for the competitor at all on the basis of an alleged fiduciary duty arising from holding confidential information; the second was an injunction to prevent the employee from using the employer's confidential information if she was working for the competitor.

The Court of Appeal unanimously rejected the application for barring-out relief, distinguishing the fiduciary duty to a client that a solicitor or adviser engaged litigation would be subject to, preventing it from acting against a former client's interests with confidential information, from that of a former employee, who was not ordinarily a fiduciary to her former employer, with the Court doubting that an employee would be a fiduciary other than in the most exceptional circumstances.

By a majority, the Court of Appeal refused the application for an injunction in respect of the feared use of confidential information by the former employee on the facts, noting the lack of any real risk of harm to the Appellant, but, differing from the High Court, observed that an employee's duty of confidentiality could be indefinite and therefore might be subject to injunctive relief.


Anonymous said...

You have repeatedly referred to the Competitor whereas this case was in relation to the Customer. It is an important distinction in this case.
You may wish to amend the relevant details.

Ian Crean said...

Daniel, you have mentioned that this case is about a former employee moving to a competitor. In fact the Respondent in this case moved to a client not a competitor and that was a fundamental aspect of the litigation and judgment. The judges mention specifically the absence of case law in respect of action of this kind against an employee moving to a customer (distinct from a competitor). I strongly recommend that you amend this blog entry though you may also wish to send an e mail to your mailing list noting the error and the very clear legal distinction. Thanks for blogging the case but please ask Deminos to get such important facts straight.

Matt Jenkin said...

Good to see the CA stating that a confidential information clause could be enforceable even if not limited in time. The original High court decision on this point that a protection for an indefinite term was invalid was unhelpful