Passi case shows value of express confidentiality provisions

Out-Law News | 01 Mar 2022 | 9:34 am |

Aisleen Pugh tells HRNews why well-drafted covenants are vital to protect employers’ confidential information post-termination

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  • Transcript

    The value of having express covenants in the employment contract to protect the employer’s confidential information has once again been demonstrated in very clear terms. In the latest example, Nissan has successfully enforced restrictions against a former senior executive forcing him to return documents he took with him when he left the firm.

    The case concerned the former Global General Counsel of Nissan, Ravinder Passi, who is currently pursuing two employment tribunal claims against Nissan. He claims he was victimised and dismissed for blowing the whistle about what had happened in relation to the high-profile arrest of former Nissan chairman Carlos Ghosn, pictured here. Ghosn, you might remember, was famously smuggled out of Japan while out on bail inside a giant musical instrument box. 

    As for Mr Passi who was dismissed by Nissan, he had taken, and refused to return or destroy, over 100 sensitive and confidential documents belonging to the car firm. He said he had taken them for the purpose of seeking legal advice, and wanted to retain them because he lacked confidence that his ex-employer would disclose them in his pending whistleblowing litigation. Nissan then applied to the High Court asking the court to enforce the express covenants in Passi’s employment contract. The High Court granted the injunction and ordered Passi to deliver up the documents, destroy all copies in his possession and provide a witness statement explaining what use he had made of the information.  

    Before we get reaction to the judgment, a reminder of how the law works in this area because there is limited protection. Every contract of employment has a duty of confidentiality implied into it. This means an employee will be subject to that duty even if their employment contract is silent on the point. That duty is wide-ranging and is not restricted to trade secrets. All good so far. The problem is that whilst that duty works well in most case during the employment relationship, it changes radically on termination. Case law says that, whilst the implied duty of confidentiality does survive the employment coming to an end, that’s only in relation to trade secrets. It means that any information that is confidential in nature but which does not reach the level of a trade secret is not protected after the employee leaves. In this case Nissan didn’t have that problem because Passi’s contract had the necessary post-termination covenants, express terms in black and white, which Nissan was able to rely on. 

    This case is clearly a welcome decision for employers, albeit not a surprising outcome given the covenants Nissan had in place. Aisleen Pugh has been looking at the judgment and she joined me by video-link. I asked her what employers can take from it: 

    Aisleen Pugh: “So, the Passi decision is a really helpful reminder to employers about the very limited scope of the implied duty of confidence after employment has ended and that duty, that implied duty, in a post termination context is limited to trade secrets. The classic example of a trade secret being the Coca Cola recipe. So you can see that in those circumstances, an employer will reasonably want a more broad protection than that and that's why it's crucial that employers include express confidentiality obligations in employees’ employment contracts. So normally, those provisions would cover far more than trade secrets. So, anything that can properly be categorised as confidential, or proprietary, to an employer. Now, it's crucially important that those provisions include clearly defined terms about the scope of confidential information and other obligations too. So, for example, an obligation to return all company information on termination and, perhaps, also an obligation to permanently delete any company confidential information that's held on personal devices or outside of the company's systems to ensure that it doesn't fall into the wrong hands, or get misused by an employee or by a competitor after their employment has terminated.”

    The pandemic has been the perfect smokescreen for employees hell-bent on stealing confidential information and it’s something we highlighted back in November in ‘Heightened risk to confidential information in Covid times’. So the pandemic has resulted in employees switching between office and home working, and very often they are emailing work to their home so they can work remotely. That puts the employer’s confidential information at risk because it can all too easily be moved from the employer’s database to the employee’s personal account and, potentially, misused. So how can you control that? What can HR do about it? Aisleen Pugh again:

    Aisleen Pugh: “Having clear and accessible policies that deal with the handling of confidential information, both during employment and afterwards and that might include, in addition, monitoring provisions about how an employer will monitor its systems to ensure that its confidential information is being appropriately protected. That's important from a data protection perspective, of course, too because of the principles of transparency and accountability, and the importance of identifying the lawful basis on which you're processing personal data for those purposes. Another thing that employers can very helpfully do is to set their IT systems and procedures up in a way that help them to identify any potential instances of theft of confidential information early doors. So, for example, flags to help employees identify mass downloads of information and voluminous printing, or sending emails to a third party personal email address which, of course, many employers prohibit in any event. Then also thinking about conducting thorough exit processes. So, for example, exit interviews are hugely important and can elicit an awful lot of information and, in particular, if an employee is leaving to join a competitor, and therefore might be a greater risk from a competition or confidential information perspective, also then giving employees a clear reminder about their ongoing duties to an employer after their employment has ended in legal letters. So, reminding them of express confidentiality obligations, but also any post termination restrictions.”

    That programme on how increased levels of home-working is putting employers’ confidential information at risk is called ‘Heightened risk to confidential information in Covid times’ and is available for viewing now from the Outlaw website.

    LINKS
    - Link to judgment: Nissan v Passi