Employers’ liability for employees’ confidentiality breaches

4th March 2021

Watch our recent webinar ‘Stopping departing employees taking confidential information and competing’ here.

Why is Travel Counsellors v Trailfinders of interest?

The recent Court of Appeal case of Travel Counsellors v Trailfinders [1] highlights the risk of employers becoming liable for their employees’ misuse of confidential information.

The case clarifies the test that the courts will apply to determine whether a third party recipient of information (such as, here, an employer) owes a duty of confidentiality to the owner of that information.

Walker Morris’ Commercial Dispute Resolution and Employment specialists Nick McQueen and Charlotte Smith explain this important decision and offer practical advice for employers.

What are the key takeaways for employers?

In this case two employees left the employ of Trailfinders and began to work for a competing travel company, Travel Counsellors.  The employees took client names, contact details and other information from Trailfinders to Travel Counsellors in breach of confidence. Travel Counsellors then misused the information for the benefit of its business.  The Court of Appeal found that Travel Counsellors was liable for the employees’ misuse of confidential information.

The key takeaways for employers to note are:

• When a third party, such as an employer, receives information belonging to another, that party/employer may owe obligations of confidentiality to the owner in respect of that information. If the recipient misuses the information, they may be directly liable for breach of confidence.
• Where the person giving another’s information to a third party (such as, in this scenario, an employee giving information belonging to its ex-employer to its new employer) does so in breach of any contractual or equitable duties of confidence, the third party/employer recipient can become vicariously liable for breach of confidence.
• The correct test to determine whether a third party recipient of information [vicariously] owes a duty of confidentiality to the owner of the information is whether the reasonable person in receipt of such information would make enquiries as to its confidentiality.
• If the reasonable person would make enquiries but the recipient in fact has not done so, then a duty of confidentiality on the part of the recipient will arise.
• In the case of primary liability for misuse of confidential information, then the ‘reasonable person in receipt of information’ test (as explained above) will suffice.
• In the case of vicarious liability for misuse by another person, more – such as actual or ‘blind eye’ [2] knowledge that the information is confidential may be required – may be required.

What practical advice arises?

Employers receiving potentially confidential information from employees – particularly where new employees are joining from competing businesses – should proceed with caution.  If there are any reasons at all for suspecting that information might be confidential (and, in reality, the context of the employee’s arrival from a competitor might be sufficient reason in itself), then failing to make enquiries will give rise to a duty of confidentiality.

Where an employer proceeds to use the information in those circumstances, that is likely to constitute a breach of the duty, resulting in primary liability for breach of confidence.

Employers also should beware their employees misusing confidential information, as this can give rise to vicarious liability on the part of the employer.

Having in place robust policies and procedures for the proper use of confidential and potentially confidential information, and the fostering of a corporate culture which recognises and respects confidentiality, can significantly minimise the risk of confidentiality breaches.  Staff education, including the education of new/incoming staff, is crucial; as is ensuring that recruitment policies and practices are consistent with the business’ confidentiality culture.

The Travel Counsellors v Trailfinders ‘reasonable person in receipt of information’ test will mean that, in practice, the vast majority of cases concerning employers’/employees’ use of confidential information will be hugely fact- and context- specific.  Such cases will turn, for example, on what happened in the particular case; who knew or said what; who did what with the information; were any enquiries made; would a reasonable recipient have made enquiries; what enquiries would a reasonable recipient have made? And so on.

In general, the more a case turns on factual (as opposed to purely legal) issues, the greater the element of ‘litigation risk’, and therefore the greater incentive for parties (often, in particular, defendants) to negotiate a settlement.  As such, it is possible that the Court of Appeal’s decision in Travel Counsellors may prompt or encourage employers/businesses whose confidential information has been stolen, copied or otherwise misused, to take legal action.

How can we help?

Walker Morris’ cross-department team of specialist dispute resolution and employment lawyers are experienced in successfully advising employers through the entire process of protecting confidential information – from drafting policies, procedures and contracts effectively, through to conducting court proceedings and/or negotiating settlements if and when any confidentiality is compromised. Our lawyers understand that each situation has its own specific circumstances and commercial realities, and have the experience and expertise to be able to discuss the various options, and likely outcomes, with you.

If you would like any further advice in relation to any of the issues highlighted in this article, or if you would like assistance with staff training or the production/review of confidentiality clauses, policies or procedures, please do not hesitate to contact Nick McQueen or Charlotte Smith, any of whom will be very happy to help.

Visit our Employment Disputes page to learn how our specialists can help you.

[1] [2021] EWCA Civ 38

[2] ‘blind eye’ knowledge is where a recipient may suspect that information is confidential but chooses not to find out (i.e. chooses to turn a blind eye)