Case update (3): Contracts of employment – Confidential information

Summary:  Will a court make an order for deletion of confidential information before a full trial?

Yes, if there is sufficient evidence of unlawful misuse of such confidential information. The High Court made such order in Arthur J. Gallagher Services (UK) Limited and others v Skriptchencko and others.

Facts: 

Mr Skriptchenkov was an employee of the Arthur J. Gallagher group (‘the Gallacher group’) until July 2014.  The Gallacher group provide insurance brokerage services. Mr Skriptchenko then moved to work for a new employer, Portsoken, which was a competitor of the Gallacher group.

In the middle of 2015 the Gallacher group discovered that Mr Skriptchenkov had taken their confidential information and was using it to contact and seek business from their clients on behalf of Portsoken.  The Gallacher group brought a claim against Mr Skriptchenko and Portsoken. Portsoken admitted that a client list belonging to the Gallagher group had been uploaded onto their IT systems and had been used to contact over 300 of their clients. They provided the disclosure of over 4,000 documents to the Gallagher group, which revealed that a group of directors and employees of Portsoken had been using the confidential information to a greater extent than initially appreciated.

In order to prevent the defendants from continuing to use their confidential information before the full trial, the Gallagher group applied for an interim mandatory injunction to have Portsoken’s electronic devices and databases imaged and searched. In a novel twist, they also applied for an order requiring any confidential information found in Portsoken’s possession to be deleted.

The High Court granted an order for:

• inspection of Mr Skriptchenko’s personal electronic devices (including phones and computers);
• inspection of Portsoken’s computer systems; and
• destruction of any confidential information belonging to the Gallacher group found on them.

An order for destruction had not been made in any previous reported cases. However, the High Court was persuaded to grant it here because it felt confident, given the strong evidence already disclosed and the admissions made, that the Gallagher group would establish at trial that Portsoken had unlawfully misused their confidential information. The Court considered that Portsoken could not be trusted to find and delete the confidential information themselves and that there was a real risk that Portsoken would continue to use the information in the run up to the trial.

However, the order was subject to a number of safeguards to ensure Portsoken’s position was protected in the event the order was found at trial to have been wrongly granted:

• the imaging, review and deletion would be carried out by Portsoken’s IT consultants;
• a copy of any information, which Portsoken disputed belonged to the Gallagher group, would be deleted irretrievably from their devices, but a copy would be retained by their IT expert; and
• a third party court or agreed arbitrator would have the final say in relation to any disputed information.

Implications:

This High Court decision is helpful to employers in that the order for deletion of confidential information was made despite there being no previous authority for such order.

It provides some comfort to employers regarding the protection of their confidential information post-employment. The usual position is that after an employment has ended, the duty to protect an ex-employer’s confidentiality only extends to trade secrets. Confidential information that does not constitute a ‘trade secret’ can only be protected if there is an express term in an employment contract to that effect. There is no definitive list of what constitutes a ‘trade secret’ and it is usually determined on a case-by-case basis.

Although no employment contract terms were referred to in this decision, it is still advisable to include express terms in an employment contract that on termination of employment confidential information and documentation in the employee’s possession – whether originals, copies or extracts, electronic or otherwise – will be returned and will not be retained or used by the employee. In any event, the presence of such contract term may well be a factor which could influence a court in favour of granting such an order.

Finally, good news for employers dealing with rogue employees – taking client records to a new employer may also be a criminal offence under the Data Protection Act 1998, punishable by a fine on conviction. This has recently been highlighted by the Information Commissioner’s Office (ICO) (see here) regarding the case of a man who was convicted after sending personal and commercially sensitive information concerning 957 clients of his employer to his personal email account as he prepared to join a rival company. The ICO is even calling for harsher penalties, including custodial sentences, to punish offenders.