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Confidential Information

Should the recipient of potentially confidential information be obliged to enquire whether it is confidential before using the information for their own commercial gain?

Travel Counsellors Limited v Trailfinders Limited

Trailfinders operates a travel agency with 37 branches and 700 sales consultants. In 2016 four sales consultants left to join Travel Counsellors Limited, a competitor. The four were followed by 40 more by the time the claim forms were submitted.

Trailfinders alleged that the ex-employees took names, contact details and other information about clients of Trailfinders which were stored in a computer system, and later accessed another computer system to obtain further client information. Trailfinders alleged that the employees had acted in breach of their confidentiality obligations and that Travel Counsellors had also acted in breach of an equitable obligation of confidence by using this information.

The High Court ruled that the specific individuals and Travel Counsellors had breached their respective confidentiality obligations. In relation to Travel Counsellors, the High Court found that

1.they expected and positively encouraged the consultants to bring contact lists with them and gave no warnings about breaching confidence;

2. they added any information brought by the consultants to their own computer system;

3. a reasonable person in the position of the senior employees at Travel Counsellors would, or ought to have known that the information was confidential to Trailfinders;

4. accordingly, Travel Counsellors were under an equitable duty of confidence; and

5. it was in breach of that obligation by using the information for their own benefit.

Travel Counsellors appealed this decision and contended that the High Court judge had applied the wrong legal test in determining that they owed an obligation of confidence to Trailfinders in respect of the relevant information.

Decision

The Court of Appeal highlighted that there was little authority on when an equitable obligation of confidentiality will apply but by reference to an earlier Court of Appeal decision explained that the following key points are relevant:

  • Where it would be reasonable in the circumstances for the recipient to enquire as to whether some or all of the information is confidential to another party, then it may be a necessary response to make such enquires depending on the facts and context;
  • If a reasonable person would make enquires but the recipient does not, then an obligation of confidentiality will arise; and
  • By contrast, where the issue relates to misuse of confidential information by another person other than the recipient, then actual knowledge or “turning a blind eye” may be required.

The court of Appeal went on to dismiss the appeal.

Comment

Employers taking on employees need to treat with caution information brought by the employee. If that information is obviously confidential and a reasonable person would make enquiries about its status, the new employer ought to do so before seeking to capitalise on such confidential information.

The paper trail in relation to the new employer’s attitude to incoming contact lists perhaps did no favours in the above case. New employers can be liable for inducing a breach of contract, which in simple terms in this context means persuading the new employee to provide their lists in breach of contract, knowing it would be a breach. Employers should avoid encouraging new employees to bring confidential information with them. If they do, a reasonable employer might check with the new employee that they had not stolen it before using it.

If you have any queries please contact our Employment Team on 01228 552600 or 01524 548494.

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