05 June 2020

Managing sensitive information and valuable IP

As employers contemplate the grim possibility that redundancies might be unavoidable during this time of uncertainty, the rigorous governance of commercially sensitive secret information and intellectual property (IP) becomes more vital than ever.

For most technology and engineering businesses, the most valuable IP is its people – and the knowledge each of them carries around in their heads, that which they will carry into any future employment if they move on.

Employers often assume that everything confidential that an employee cannot disclose during their employment is a trade secret, which, if the employee left the company they could not use in employment by a competitor or in their own competing startup. This is not the case.

There is a distinction between trade secrets and the employee’s own know-how. An ex-employer can take legal action against an ex-employee or his/her new employer to restrain use of trade secrets, but unless they have taken the proper steps, the ex-employer cannot do anything about the ex-employee making use of their own know-how.

The boundary between these two types of confidential information can be unclear. It is possible for something which starts out as a trade secret to cease to be treated as such, because of the way it is handled in a business. Thus, in some circumstances, information handling practices can cause control of a valuable once proprietary secret to be lost when employment ends.

Employee knowledge and trade secrets: what is the difference and why does it matter?

The law recognises that employees may use different types of information in their employment. Firstly, there is information which is not confidential. Secondly, there is information in the form of the employee’s knowledge which the employee must treat as confidential during the period of his employment, but which they are not restrained from using or disclosing after the employment has ended. Thirdly, there are trade secrets.

Even prior to the adoption of the Trade Secrets Directive in 2018, this third class of information had its own definition and required different treatment. The second class of information necessarily remains in the employee’s head and becomes part of his or her own skill and knowledge. Significantly – there is generally no restriction on the employee using or disclosing this second class of information, their own knowledge, after termination of the employment.

What questions does this create for employers?

Firstly, there is no ‘bright-line test’ to separate one type of information from the other[1], and there is no magic way to make legitimate employee knowledge be deemed a trade secret. Proper management of sensitive information is needed however to ensure that valuable trade secrets do not inadvertently become, through mishandling, information which an ex-employer can no longer control when employment ends.

Secondly, the ex-employer must be able to identify the particular secret information at issue, and preferably to define it in a way which is broad enough to protect the ex-employer’s legitimate interests but without being so broad as to go beyond the enforceable scope of the ex-employee’s obligations.

For further information about managing your business’ sensitive and confidential information, distinguishing between trade secrets and employee know-how, get in touch with one of our IP experts.

[1] The Trade Secrets Directive (also known as the Trade Secrets (Enforcement, etc.) Regulations 2018) provides its own definition of a trade secret.