18 Jul 2016

The High Court has recently ordered the inspection and imaging of a former employee’s personal computer and electronic devices (and those belonging to his new employer), to ensure that any of his former employer’s confidential information is removed.

The High Court has recently ordered the inspection and imaging of a former employee’s personal computer and electronic devices (and those belonging to his new employer), to ensure that any of his former employer’s confidential information is removed.

Background

Most employment contracts contain comprehensive protection of the employer’s confidential information and commercially sensitive data, both during and after employment. In addition, a prohibition on divulging an employer’s confidential information to a third party during employment is implied into every contract of employment (although implied protection post-termination is limited to the narrower category of ‘trade secrets’).

An employer whose confidential information is misused can seek an injunction to prevent any further breaches against an offending employee (and, if appropriate, against any new employer that induces a breach). A court will often order an interim injunction at an urgent hearing, pending full consideration of the issues at a full trial. In return, the company applying for the injunction will give a cross-undertaking in damages, to cover any losses if the court decides at full trial that the interim injunction should be lifted. But how does the employer ensure that confidential information has not been retained, in circumstances where the former employee or their new employer cannot be trusted to destroy it?

In Arthur J Gallagher v. Skriptchenko, Mr Skriptchenko was employed by an insurance brokerage group. Mr Skriptchenko’s contract was terminated in 2014 and a year later he began working for rival brokerage, Portsoken Limited. In July 2015, Arthur J Gallagher became suspicious of Mr Skriptchenko’s business activities and brought a claim against him and Portsoken for the wrongful use of its confidential information. It was eventually admitted that Mr Skriptchenko had appropriated one of Arthur J Gallagher’s client lists (containing the details of over 300 clients). As a result, Arthur J Gallagher successfully obtained a mandatory injunction ordering both Mr Skriptchenko and Portsoken to hand over all confidential information they had misappropriated and misused.

At this stage, it became evident that various other directors and consultants employed by Portsoken were also misusing Arthur J Gallagher’s confidential information on a much wider scale. A further application was made to the court which sought an injunction to inspect and image all relevant computers and electronic devices, and for any confidential information belonging to Arthur J Gallagher to be deleted.

Portsoken and Mr Skriptchenko argued that they had already fully complied with the order to return confidential information and described this further request as an expensive, invasive and unprecedented measure which should be more appropriately considered at the end of a full trial (rather than at this interim stage).

High Court decision

The High Court decided that they could not be trusted to delete the information themselves and granted the order for interim relief. This provided for imaging of the relevant computers and devices by an external IT expert, appointed by Portsoken, who would use an agreed set of search terms in order to identify (and then destroy) any confidential information belonging to Arthur J Gallagher.

In reaching this decision, the High Court had to balance the interests of both parties (and, in particular, their rights to confidentiality) with the potential risks of injustice. In relation to the former, the Portsoken’s systems would only be accessed by a third party and any disputes as to whether particular information was confidential would be referred to an independent judge or arbitrator. As such, their rights were adequately protected. In terms of injustice, the imaging and preservation of information ensured that any wrongly deleted material could be restored after the trial (if the injunction was lifted at full trial) and the High Court therefore decided that this measure involved the least risk of injustice should they turn out to be wrong.

Comment

Equitable remedies, such as interim injunctions may be granted at the discretion of the Court where financial damages alone are unlikely to reconcile an injustice. Ordering the destruction of confidential information at the interim stage is a relatively drastic step, but one which the Court felt was necessary in the circumstances. It is notable that the previously dishonest conduct exhibited by Portsoken and Mr Skriptchenko influenced the decision to grant the order, with the High Court referring to ‘a high degree of subterfuge in the use of Arthur J Gallagher’s confidential material’.

Employers should ensure that their contracts of employment very clearly set out an employee’s obligations as to confidential information after their departure. In particular, employers should ensure that departing employees are contractually obliged to return all confidential information and to irretrievably delete any electronic copies which remain in their control. Where there is a tangible risk of confidential information being misused in the hands of a new employer (who will often be a direct competitor), it is also advisable to write to that competitor and put them on notice of the ongoing contractual obligations owed by the departing employee.