A recent High Court decision on 29 July 2011, has once again highlighted the importance of employers taking appropriate steps to ensure that they are sufficiently protecting their confidential information from their competitors and employees.

In the case of Space Air Conditioning Plc v Guy and Smith Brothers Stores Limited (2011) EWHC 2107 (ch), the Court held that Space Air Conditioning had not sufficiently proven or adduced evidence that Mr Guy (a former employee) had broken his contractual duties and taken and used either the confidential information, or the discount information unlawfully.

Mr Guy left the employment of Space Air Conditioning and went to work for Smith Brothers as a Sales Manager. As a consequence, a vast number of customers moved across and business was diverted, which resulted in legal action by Space Air Conditioning. An interim injunction was initially granted but later dismissed by the Court.

Mr Guy had a contract of employment with Space Air Conditioning which contained both express and implied terms. For example, he was bound not to take steps during his employment with a view to securing a competitive advantage or to act in a manner in conflict with Space Air Conditioning’s interests. Naturally, he was not permitted to take confidential information and either copy this or memorise this for a future advantage, nor was he permitted to disclose trade secrets of his employer. Unfortunately, Mr Guy’s contract of employment did not contain any restrictive covenants which would have enabled Space Air Conditioning to succeed with its injunction, assuming those covenants were enforceable.  

Space Air Conditioning was unsuccessful in its claim against Mr Guy and Smith Brothers Limited because there was insufficient evidence to succeed.

The present economic challenges that companies are currently facing, expose them to a real risk of employees defecting to work for either competitors, or setting up competing businesses. As such, there is a real threat that they will take customers or confidential information with them. There have been instances in the past, where companies have failed as a result of suffering such a severe blow, and the threats that companies are facing should not be underestimated.  

This case highlights the need to ensure that companies have robust employment contracts, service agreements and shareholder agreements in place with suitable and legally enforceable restrictive covenants. Failure to include such covenants in your contracts, could be seriously detrimental to your business and it is important to note that the covenants could be both present and post termination provisions.

Confidential information goes to the very heart of a business and there are various IT processes that can also be adopted to ensure that full protection is in place for you and ongoing monitoring. A review of such policies would be a worthwhile exercise to carry out at this stage.

If you  have encountered difficulties with former employees, directors or shareholders and require advice either in respect of either breaches of contract or confidential information and the remedies available, please contact Diane Pearce on 02380 482299 or diane.pearce@parissmith.co.uk