A recent case in the High Court has resulted in a business being awarded just £2 in nominal damages, to compensate for two of its employees retaining the business’s confidential information in breach of their duties.
The facts involved a number of employees leaving the claimant business to set up their own rival business. Two of these employees, one of whom was a founder of the claimant, copied and took a number of confidential company documents with them to the new business. The judge found that these actions were a breach of the employees’ duties of confidence to their former employer.
The claimant business was seeking damages of £15 million as compensation for this breach of confidence, so how did the judge end up awarding it a mere £2? The business’s claim was for the value of the confidential information taken, rather than the loss incurred. The purpose of awarding damages in the English courts is to compensate the injured party for the loss which it has suffered. Damages are not awarded on a punitive basis to punish the wrongdoer.
The judge could have made an order for the former employees to compensate the claimant for the loss it had suffered, but as that had not been pleaded by the business so it was not open to the court to consider it. In any case, it is likely that any loss would have been found to be minimal. One employee made no use of the files at all. The other had used a few, but neither had made any significant gain from the information they had taken.
In a modern era of information technology, it is not uncommon for employees to misappropriate confidential information when they move organisation either intentionally or inadvertently, and many employers obtain a forensic IT analysis of employee’s devices when they leave to ascertain if this has happened. However, unless a business can prove that it has suffered loss or that the former employee has made unjustified profits from this information then it is unlikely that the courts will be willing to award much more than nominal damages for breach of duty.
How can you protect your business?
Firstly, ensure that your employment contracts contain post termination restrictions and importantly tailored confidentiality policies which clearly defines what documents and information will be deemed to be confidential. Secondly, ensure that you treat confidential information as confidential and thirdly, if you do not have appropriate policies and documentation in place already in the event of a senior employee leaving act quickly to protect your confidential information.
There are tools available to businesses to prevent misappropriation or use of their confidential information, such as a confidentiality injunction to restrain anticipated use of confidential information. In addition, in circumstances where an employee has already used the information to gain an unfair advantage, then a “spring board injunction” is a powerful mechanism which prevents the employee from dealing with any customer or contact who they contacted using the confidential information or while they were in possession of it, in order to restrict any benefit the former employee can gain from their misconduct.
Although the Courts can offer a remedy for financial loss, the most important aspect for most businesses is to prevent any possibility of loss in the first place. Crucially, as seen in this case, it is important to ascertain if any loss has been suffered before commencing any action for damages against an employee who has breached confidence. This could avoid expensive legal proceedings when damages available will be negligible, and resources could be focused on other remedies instead.
If you would like to further discuss any of the information included within this article, please contact our dispute resolution team on 01892 510000.