Most employers agree that confidentiality around what they do, and how they are doing it, gives them an important edge in competitive markets. But how can a business protect itself from former employees who want to use that information to compete?
Post-termination restrictions in employment contracts can provide some assistance, by preventing employees from using confidential information or contacts gained during their employment to compete with their former employer. But what if the employee threatens to breach those restrictions? In that case obtaining an injunction can be a useful way of limiting the potential damage. An injunction is essentially a court order that can be used to force an individual to do something, or to stop doing something, and can be a useful tool where an ex-employee is flouting their restrictions. Where there is imminent risk of a restriction being breached an interim injunction might be appropriate, which is a temporary injunction used to preserve the status quo (pending a full trial of the dispute).
Before seeking an injunction a business should generally attempt to contact the ex-employee and request written undertakings that he or she will abide by the restrictions. But if that tactic doesn't work it's time to consider applying for an injunction.
To persuade a court to grant an interim injunction there needs to be a serious issue to be tried; a real risk of damage to the business should the information be used or disclosed. Secondly, the business must demonstrate that damages wouldn't be an adequate remedy – e.g. because it would be difficult to quantify any losses stemming from the use or disclosure of the information. Thirdly, it needs to be just and convenient for the court to order the injunction, taking account of any harm that granting the order will cause to either party.
If an interim injunction is granted and then breached by an employee he or she will be in contempt of court and can be fined or in serious cases jailed. And while employers have been wary of seeking injunctions in the past – mainly because the courts rarely imposed the most serious penalties on individuals – recent cases have shown that the tide might be turning.
One example of this is OCS Group UK v. Dadi. Mr Dadi sent confidential information belonging to his employer to his personal email address and external storage devices. OCS obtained an interim injunction that prohibited Dadi from further disclosing, transmitting, or destroying the confidential information pending trial, or from discussing the injunction with third parties. In breach of that injunction Dadi deleted more than 8,000 emails and told a number of people about the order. Rather than imposing a fine the High Court decided that a sentence of six weeks' imprisonment would be appropriate, to highlight its disapproval of his deliberate breach of the injunction.
While businesses will welcome this decision, the recent case of NIIT Technologies v. Mr Chaturvedi serves as a useful reminder of the need for evidence when seeking an interim injunction. In that case the High Court refused to grant NIIT Technologies an interim injunction on the basis that there was no evidence that Mr Chaturvedi had poached other members of staff after leaving the business – the fact that they had resigned just after his departure, and that Chaturvedi had refused to give undertakings confirming that he wasn't in breach of his post-termination restrictions, was not sufficient to justify an interim injunction.
Ultimately, interim injunctions are a powerful tool for employers who want to limit the ability of ex-employees to use or disclose confidential information. However, to take full advantage of this tool businesses should ensure that their employment contracts contain appropriately-worded and up-to-date post-termination restrictions, and should put policies in place for the deletion and/or return of confidential information following the end of the employment relationship.
Elizabeth Marshall is a senior associate at Dentons