Key players in the fashion industry regularly move around, whether to further their careers, branch out into a different sector, or to set up business in parallel to their former employer. The search for new creative leadership will help fashion businesses re-invent themselves in the post-pandemic world.
What type of information is protected by confidentiality?
There are three general categories of information which may be confidential:
General skill and knowledge for example, a designer’s creative skill
Confidential information such as client lists, financial information, marketing strategies
Trade secrets a commercially valuable secret that gives the owner a competitive advantage. For example, the materials used to make the Nike 1:59 marathon shoe
During employment, your employees have an implied duty to keep all of this information confidential.
However, once they have left, the picture is different and you will be more at risk of misuse of your confidential information and data. Although employees are still subject to an implied duty to keep trade secrets confidential, without specific and robust post-termination confidentiality terms in the employment contract, wider valuable confidential information is at risk of being passed to a competitor.
The 4 practical steps to protecting your confidential information are:
The confidential information your business currently owns: This may include intellectual property, such as designs and trademarks, or it may be as simple (but important) as a list of client names and contact numbers. Once identified, that information should be appropriately labelled (e.g. with “confidential” or “not to be disclosed externally”), securely stored, and handled accordingly.
The individuals with access to confidential information: Not everyone in your business will need access to all of the company’s confidential information in order to do their job. Administrative staff, for example, may require access to client contact details, but not to new designs. Similarly, designers may need to know your sourcing arrangements, but not have details of the company’s overall supply chain. Ensure you understand which employees have regular access to your valuable confidential information – this will assist you when it comes to justifying the employment contract protections you put in place.
Once the important information is identified, along with the individuals who can access it, employers can use contracts and policies to ensure that there is a legal disincentive against their information and intellectual property from being poached. You should consider:
The employment contract
The first layer of business protection will come in the form of bespoke confidentiality clauses incorporated into your employment contracts. These should be specificallytailored to the information which is relevant to the business and tightly drafted, so that they capture only that information that the business can lawfully protect (such as information which is not otherwise in the public domain).
For example, recent cases have shown that trying to restrict an employee from disclosing generic information “relating to the business, products, affairs and finances” of a company is unlikely to be enforced by the Courts.
As well as confidentiality clauses, well-drafted appropriate restrictive covenants can also effectively protect your confidential information. In particular, an enforceable non-compete restriction can prevent an employee from joining a competing business for a specified period of time (generally no longer than 12 months) after their employment ends. Similarly, non-solicitation and non-dealing restrictions may prevent them from contacting and/or working with any of your key clients or suppliers for a limited period.
However, more is not necessarily better. These restrictions will only be enforceable if they operate in a way that is no wider than necessary to protect a business’ legitimate interests – as well as goodwill and the stability of the workforce. That can also include trade secrets and confidential information.
The same principles apply when drafting clauses in a settlement agreement, where an employee is exiting the business. Given that settlement agreements are often drawn up under contentious circumstances, it is particularly important that the employer focuses its mind on the confidential information that it is seeking to protect.
The agreement may need to ensure a specific payment is made in return for new confidentiality restrictions. This will protect the tax treatment of any separate compensation payments and may assist with enforcement.
A good confidentiality policy should highlight (1) the business’ expectations about confidentiality; (2) the types of confidential information existing within the business; and (3) ways to keep such confidential information secure.
For a policy to be effective, it must be read and understood by the workforce, so there is little to be gained from hiding your confidentiality policy deep in the company handbook – ensure it is clearly visible and publicised to your employees, and make sure it is read alongside other relevant policies such as IT security and data protection.
In addition to the legal documents described above, training should also be provided as a further means of reducing risk. This will help employees to (1) identify the confidential information they may be working with or have access to; (2) understand how to keep that information confidential; and (3) raise awareness of their contractual obligations both during employment and after leaving the business.
Training is more important than ever now that so many employees have been regularly working from home and may continue to do so through hybrid working arrangements. It is likely to be beneficial to run refresher training sessions that highlight any additional measures and reiterate the importance of protecting confidential information, no matter the location that an employee is working from.
Fashion businesses should consider whether they can monitor their IT systems to ensure they pick up any data and confidentiality breaches promptly. Given the growth of hybrid working, fashion employers may now be more vulnerable to the loss of confidential information as remote working makes it more difficult to ensure data security.
During employment: It is possible to monitor the use of your confidential information. By using software which can alert you instantly to suspicious behaviour, such as large downloads, emails to personal accounts or voluminous printing. However, there are various legal restrictions (not least the GDPR) which make employers at risk of overstepping the mark. They will need to ensure that any monitoring is proportionate in relation to the legitimate interest that you are seeking to protect (namely the confidentiality of your business information). You would also need to keep employees well informed about the type of monitoring the company is likely to perform, by means of data privacy notices and other documents.
After termination of employment: IT checks can be performed on company devices returned by a departing employee to ensure that confidential information has not been suspiciously downloaded or emailed externally. You may also wish to keep a close eye on the employee’s future activity within the fashion industry, to spot any early signs of breach of restrictive covenants or leaks of confidential information to a competitor. This may prompt enforcement action such as an injunction.
What if you are the hiring employer?
The key attraction of a new recruit is often their previous experience, sometimes with a competitor, and their depth of knowledge about the industry. However, incoming employees may have accessed a large amount of confidential information of their former employer, which will usually be the subject of restrictions. As the new employer you may find yourself subject to duties of confidentiality that prevent you from using it in a useful way for your business, even if it is of a great commercial benefit to you.
A recent case involvingTrailfindersprovides a clear warning to businesses which receive information from a competitor, even where they are not aware that the information is necessarily confidential.
40 sales consultants at Trailfinders left to join a competitor which encouraged the consultants to bring their customer contact lists and didn’t warn them that this might lead to a breach in confidence. The Court of Appeal held that the competitor was in breach of an obligation of confidence: even though it was not explicitly made aware that the information was confidential, it ought reasonably to have known that it was or, if unsure, it should have made enquiries as to whether it was.
To avoid falling into any disputes, we would recommend:
Being cautious with the wording of job adverts and conduct of interviews, so as not to encourage new recruits to bring along and disclose confidential information from their old employer (e.g. a list of their key clients). This may be seen as an inducement for an employee to breach their employment contract and could result in a claim against you for any resulting losses;
Inviting incoming employees to confirm whether they have any restrictions in their previous employment contract that will impact on their new role;
Discouraging employees from using or disclosing any information which has come from their former employer without its consent. As Trailfinders demonstrates, turning a blind eye will leave you at risk;
If information is disclosed to the business, considering whether it might be confidential. If it is clearly the type of information that your business would consider to be confidential, then don’t use it!
If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.
Need more information about the above people and legal expertise? Talk to one of our lawyers: +44 (0)20 7628 2000
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