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Breach of Confidence and the New Employer

A decision of the English Court of Appeal allowed a claim for breach of confidence against the “new” employer who obtained possession of the confidential information from “new” hires.


Facts

The plaintiff was a travel agent with 37 branches in the UK and Ireland, employing over 700 sales consultants. Several individual sales consultants employed by the plaintiff left to join a competing travel agency. Each of the individual defendants took with them the names, contact details and other information about the clients they had served while employed by the plaintiff. Each employee accessed the plaintiff’s computer system to obtain the information.

The plaintiff brought an action alleging that the individual defendants acted in breach of implied terms in their contracts of employment and in breach of their equitable obligations of confidence owed to the plaintiff. It was also alleged that the competing travel agency with whom they worked acted in breach of an equitable obligation of confidence.


The Trial

The trial Judge concluded that each of the individual defendants had acted in breach of their duties to the plaintiff: Trailfinders Limited v Travel Counsellors Limited [2020] EWHC 591. Each of the individual defendants had compiled lists of clients and contact information based on information taken from the plaintiff’s computer records.


The Judge found that the defendant agency did not supply its agents with potential customers. The agents were expected to bring their own customers and encouraged to do so. They were not warned about any risk of breach of confidence in doing so. The defendant agency added the client information brought by the individual defendants to its computer system.


It was highly improbable that the defendant agency believed that plaintiff did not regard such client information as confidential since the defendant agency maintained that its own equivalent information was confidential.


A reasonable person in the management of the defendant agency’s operations would have known at least part of the contact information brought to it by the individual defendants was likely to have been copied from the plaintiff’s customer data. There was too much of it to have been carried in their heads. Individuals at the defendant agency knew or ought to have known that the plaintiff would regard the information as confidential. A belief that the defendant agency was receiving confidential information could only have been reversed if the individual defendants could have provided convincing reasons this was not the case. They did not, and the defendant agency chose not to inquire.


The defendant agency received the information subject to an equitable obligation of confidence. It acted in breach of that obligation because it used the information to benefit its business.


The Appeal

The English Court of Appeal confirmed that an equitable obligation of confidence will arise not only where confidential information is disclosed in breach of an obligation of confidence (which may itself be contractual or equitable) but also when a recipient of the confidential information knows or has notice that the information is confidential. Whether a person has notice is to be objectively assessed by reference to a reasonable person standing in the position of the recipient.


If the circumstances are such as to bring to the notice of a reasonable person in the position of the recipient that the information, or some of it, may be confidential to another, then that reasonable person's response may be to make enquiries. Whether the reasonable person would make enquiries, and if so what enquiries, is inevitably context- and fact-dependent. If a reasonable person would make enquiries, but the recipient abstains from doing so, then an obligation of confidentiality will arise.


The Court agreed with the trial Judge’s decision and dismissed the appeal; Travel Counsellors Limited v. Trailfinders Limited [2021] EWCA Civ 38. The Court observed there was little authority directly assessing the obligations of a third party in this type of situation.


The Canadian Position

The Canadian position is similar. This Supreme Court of Canada has said a court should consider the behaviour of the person who comes into possession of confidential information that was accepted on that basis, either expressly or by implication. A court will pursue the information in the hands of a third party who receives it knowing that it was communicated in breach of confidence (or afterwards acquires notice of that fact, even if innocent at the time of acquisition) and impose its remedies.


Comment

This decision emphasizes that a “new employer” can be responsible for the confidential information brought into the organization by the new employees.

If you have questions, please contact me at mckeown@gsnh.com.



John McKeown

Goldman Sloan Nash & Haber LLP

480 University Avenue, Suite 1600

Toronto, Ontario M5G 1V2

Direct Line: (416) 597-3371

Fax: (416) 597-3370


These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.


A version of this article originally appeared on the Lawyer’s Daily website published by LexisNexis Canada Inc.


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