The importance of confidentiality clauses

The importance of confidentiality clauses

Your sensitive and confidential information is likely to be a key business asset so you should protect it by including an express confidentiality clause in employment contracts. Why is this better than relying solely on the implied duty of confidentiality?

Implied duty of confidentiality

All employees owe an implied duty of confidentiality during their employment, and this includes respecting your confidential information. This means they cannot misuse it for their own purposes or disclose it to third parties, such as to your competitors. Your confidential information may include, e.g. a client database, pricing list or a secret formula. However, once the employee's employment terminates, only highly confidential 'trade secrets' continue to be protected by the implied duty of confidentiality. A trade secret could include a secret manufacturing process or a special method of construction. But it won't cover all the information that you might view as confidential. It will be for the courts to determine whether something is a trade secret.

Express confidentiality clause

As the implied duty of confidentiality is limited, don't rely solely on it. Also protect your sensitive business information by including a confidentiality clause in employment contracts. This may potentially be capable of protecting confidential information both during and after employment.

In your clause, include a clear definition of what constitutes "confidential information", specifically tailor this to reflect your business activities and needs and draft it no wider than reasonably necessary - vague and wide-ranging clauses may be void. Also define the extent to which employees are restricted from using and exploiting confidential information during and after employment and specify any exceptions (such as disclosures required or permitted by law).

Trap. You can't make non-confidential information confidential just by including it in your definition and you shouldn't seek to do so. Therefore, don't include information in your definition that's already in the public domain, is clearly not confidential or is part of an employee's skills and experience.

Tip. You can take disciplinary action if an employee misuses your data during their employment. You will have infringement and further causes of action against them for breach of contract, e.g. by claiming damages for breach of contract to cover any financial losses you have suffered and/or by seeking injunctive relief.

Other precautionary steps

Beyond contractual clauses, other steps you could take to protect your confidential information include: (1) ensuring it's only circulated on a "need to know" basis with a warning that they must not disseminate it, (2) stamping it physically or electronically with a "strictly private and confidential" mark, you can have similar footers for emails containing confidential information, (3) having appropriate security measures in place for confidential databases, e.g. encryption or password protection, (4) monitoring out-of-hours use of photocopiers and printers, (5) monitoring emails between work and personal email addresses, (6) prohibiting the use of external storage devices in work computers or laptops, and (7) requiring staff to return all company equipment and to delete or destroy hard and soft copy documents on employment termination and to give a written undertaking that they have not retained any copies.

The implied duty of confidentiality is limited, e.g. it only protects trade secrets once an employee's employment has ended. A well-drafted confidentiality clause may be capable of protecting a wider category of confidential information both during and after employment. It's also generally easier to enforce an express clause than an implied term.