New EU legislation could pose risk to businesses

A new Trade Secrets Directive could put businesses’ confidential information at risk by making the law around it more open to interpretation, according to a leading lawyer.

The EU legislation must be incorporated into English law by June 9, 2018, which means that – regardless of when Article 50 is triggered – there will be a period of time when it will affect British businesses.

And, according to corporate and commercial lawyer James Pressley from leading law firm Kirwans, the current English law which recognises breaches in business confidentiality even in cases when parties have not signed non-disclosure agreements could be affected.

James said:

“All businesses have trade secrets, from customer databases to in-house processes. Existing English law states that confidential information is protected when a person acquires information he knows, or ought to know, is fairly and reasonably to be regarded as confidential.

“So, if a business discloses sensitive business information to another person, who knows or ought to know that information is confidential, the law respects the sensitivity around that material, even if a non-disclosure agreement is not in place.”

Lending giant Barclays felt the full effect of the flexibility of this current English law when it was ordered to pay out £10m in 2014 after acting on sensitive information entrusted to it by a potential client looking to secure a loan to purchase a carbon trading company.

Barclays subsequently bought the carbon trading company, and made a significant profit in the process. Although there was no non-disclosure agreement in place, the judge ruled that Barclays had exploited its client’s confidential information, and Barclays had to pay substantial damages as a result.

In contrast, James explained, there is a clear definition of ‘trade secret’ under the Trade Secrets Directive – but part of this is open to interpretation.

James said:

“The directive states that, amongst other identifying features, a trade secret is material which ‘has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.

“But what are the ‘reasonable steps’ you need to take to qualify information as secret? Having a non-disclosure agreement in place would obviously be a reasonable step, but what if you don’t?

“Some expert legal commentators have suggested that the Trade Secrets Directive may not make a great deal of difference, as it may be possible that parts of the existing UK law of confidence could exist alongside the new UK law implementing the Trade Secrets Directive, but we can’t be certain of this. In fact, the government may decide to review the whole of the law in this area when it is preparing to implement the Trade Secrets Directive.”

James is now advising businesses to check all employment and business contracts. He added:

“Under current UK law, employees are allowed to take their ‘skills and experience’ with them when they go to a new job. This might include, for example, knowledge of the requirements of customers in that particular industry. It would not include a database of customer contacts, or details of product formulae.

“There is some concern that, because the definition of ‘trade secret’ in the Trade Secrets Directive is wider than the UK law definition of confidential information, departing employees could expand what is meant by ‘skills and experience’ in scope from what employees are allowed to take with them under current UK law.

“It seems quite obvious that employment contracts should have a clause in them protecting confidential information, but that is not always the case. A confidentiality clause in employment contracts would certainly be necessary to ensure reasonable steps had been taken.”

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