12 June 2013

Breach of Confidentiality - Ignorance can be bliss

Breach of Confidentiality - Ignorance can be bliss

An interesting question was recently decided in the case of Vestergaard Frandsen v Bestnet Europe Ltd which pondered whether an employee can be liable for breach of confidence if they start a new business with others who, without the first employee knowing about it, misuse confidential information.

Mrs Sig formerly worked for Vestergaard, a producer of mosquito nets, until she left with Mr Larsen and Dr Skovmand to form a new company in the same line of work, called 'Intection'.

It later transpired that Intection's product design was based on confidential information which Dr Skovmand had taken from Vestergaard. Mrs Sig was totally unaware of this fact until Vestergaard commenced proceedings.

The Supreme Court considered two key issues in deciding whether Mrs Sig, along with Dr Skovmand and Mr Larsen, could be liable for breach of confidence towards her former employer.

The first issue was that the express confidentiality term in Mrs Sig's contract only covered knowledge gained by her personally during her employment with Vestergaard, not the knowledge that had been gained by others.

Secondly, there was no 'common design', ie an active 'conspiracy' of which Mrs Sig was a part. It was found that she was an unknowing participant in the misuse of Vestergaard's confidential information and so was spared liability for the acts of her colleagues.

Conclusion

This case highlights that if an employer decides to pursue a group of employees for breach of restrictive covenants and/or misuse of confidential information they should be very careful as to which employees they pursue. The employer should undertake early investigatory attempts to identify the 'culprit' employee and not to take a scattered approach when issuing a claim.

There was also a brief consideration by the Court that with such cases there needs to be a balance between the protection of intellectual property and free market competition. So when your salesman leaves for a competitor, the Court will try and identify a line between the ordinary rough and tumble of business life, and serious damage to your business. Only if the latter is evident will it enforce any restrictive covenants