How can companies prevent former employees from using confidential information once they’ve walked out the door?
Kiran Radhakrishnan explains
In order to maintain a competitive edge in an era of globalization and increasingly liberalized markets, businesses stay on top by protecting the innovative ideas, proprietary information, internal workings and mechanisms that give them advantages over their closest rivals. Numerous companies have been faced with disgruntled or greedy former employees who have divulged confidential details to competitors or disseminated information for public consumption as payback for perceived injustices.
These situations can be a huge setback for companies, in some cases leading to heavy losses. One example is the Stellar Information Technology v Rakesh Kumar & Ors dispute in 2016, which was heard by Delhi High Court. The plaintiff’s contention was that the former employees were making use of confidential data and trade secrets to secure business for their new company and approach their existing customers.
Kolkata High Court recognized the growing importance of trade secret protection and enforcement in the 2015 cases of Hi-Tech Systems & Services v Suprabhat Ray and Fairfest Media v ITE Group. The ruling in these decisions suggested that courts can be persuaded to enforce secrecy clauses post-termination of an agreement.
This suggestion raises questions. Is a person who has signed a non-disclosure agreement (NDA), or a confidentiality agreement with an employer, bound by the agreement even after he or she is no longer employed by the company? Can an employer prevent a former employee from using its confidential information for competitive advantage in his or her new employment?
If there is no contract/confidentiality agreement/NDA signed between the employee and his/her former employer, nothing can deter a departing employee from disclosing confidential information.
Protecting information and preventing its disclosure is pretty much the essence of a confidentiality agreement. It is imperative that the agreement be specific and detailed, yet sharp and lucid. An agreement that is too broad could be declared void by courts, while one that is too restrictive could be deemed unenforceable.
Therefore, it is pertinent for companies to find the right balance and ensure that its interests are well protected. The repercussions of misuse of confidential information could include fraud, the destruction of careers or other violations.
While it is up to an individual employer to determine the information that needs to be protected by employee confidentiality agreements, the agreement should ideally include the following:
Restricted information. This includes highly sensitive or valuable information, both proprietary and personal, and/or a trade secret that if disclosed to unauthorized individuals, entities or society could have a significant impact on the business’s legal/regulatory obligations, or on its financial, commercial or economic status, customers, franchises, distributors, bankers, partners, associates, affiliates, service providers, patrons and clients.
This information includes financial data, major product and marketing plans, or merger and acquisition information before it is released to the public. A “trade secret” can be formulae, technical know-how or a peculiar mode or method of business adopted by an employer that is unknown to others (see Ambiance India v Shri Naveen Jain, Delhi High Court, 2005).
Internal information. This is information that an employer determines has the potential to provide a competitive advantage, or that would have a significant impact on the business if disclosed to unauthorized individuals. This information is only meant for internal access and circulation and is protected from external access. Information about or belonging to customers, employees and businesses that the company is obligated to protect cannot be divulged outside the organization.