Law on Breach of Confidence and Recourse by Employers Against Employees

Breach of confidence is a common-law tort protecting trade secrets and private information conveyed in confidence and usually in the course of employment.

The rules on protection of confidential information protect ideas, information or “know-how” not known to the public, and therefore the unauthorised disclosure of trade secrets and confidential information is considered a breach of confidence and may give rise to civil liability on the part of the disclosing party.

Commonly, the relationship between employers and employees gives rise to an automatic “duty of confidentiality”, encompassed in a more general “duty of fidelity”.

In other words, the employee must act in the employer’s best interest at all times, which include the protection of confidential information and trade secrets of the employer.

What is more, once an employee leaves employment, he or she is still obliged to keep confidential the confidential information and trade secrets which he/she was exposed to in the course of the employment.

This is especially relevant when the employee moves to another employer operating in the same field of the previous employer or when the employer starts his/her own business.

However, obviously such protection does not include general skills and knowledge acquired by the employee during his/her employment.

CIRCUMSTANCES IN WHICH A BREACH OF CONFIDENCE ARISES

In line with the developments in English law which are followed by the courts in Malaysia, breach of confidence is generally actionable before the Malaysian Courts when the following three conditions are met:

• that the information which the plaintiff is seeking to protect is of a confidential nature;
• that the information in question was communicated in circumstances importing an obligation of confidence; and
• that there must be an unauthorised use of the information to the detriment of the party communicating it.

The first condition which needs to be met is that the information which the plaintiff is seeking to protect should be of a confidential nature. This would mean that the information must not be available to the general public or readily accessible to people that normally deal with that kind of information.

As such, when an employee’s breach of confidence results in the information becoming publicly available, he/she is liable for the loss and damage suffered by the employer which arises from such disclosure.

The second condition is that the information in question should have been communicated in circumstances importing an obligation of confidence. This would mean that it must be reasonably made clear to the recipient that the information was imparted in confidence.

The obligation of confidentiality must arise, implicitly or explicitly, by the circumstance in which the information was communicated to the employee. In the event the confidential nature of the information was not made clear to the employee, it may be argued that such obligation of confidence could not be imposed on the employee.

Thirdly, there must be an unauthorised use of the information to the detriment of the party communicating it. To satisfy this condition, there must be an actual unauthorized use or disclosure of the information in question. Alternatively, there can also be an “anticipated” unauthorised use of the information, which is likely to result in damage for the employer.

The law of confidentiality in the context of a relationship between employer and employee has been set out clearly in the case of Faccenda Chicken v Fowler [1985] FSR 105 at p 114 which was later followed and applied in many Malaysian cases. The principles observed in this case are as follows:

• Information of trivial character or easy accessibility from public resources cannot be regarded by reasonable persons or by the law as confidential. The employee is at liberty to disclose it during his service or afterwards as he pleases, even to a competitor.
• Information which the employee must treat as confidential (either because he is expressly told it is or because from the nature it is obviously confidential) but which once learned necessarily remains in the employee’s head and becomes part of his own skill and knowledge applied in the course of his employer’s business. So long as the employment continues, he cannot otherwise use or disclose such information. But when he is no longer in the same service, the law allows him to use his full skill and knowledge for his own benefit in competition with his former master.
• Specific trade secrets so confidential that, even though may necessarily have been learned by heart and even though the employee may have left the service, cannot lawfully be used, save for the employer’s benefit.

REMEDIES AVAILABLE TO EMPLOYERS

Under Malaysian law, employers are entitled to bring a cause of action in court against their employee or ex-employee for breach of confidence in order to protect the employer’s right to preserve confidentiality over the confidential information and trade secrets.

The common remedies which employers could seek from Courts for employees’ breach of confidence or disclosure of information which is confidential in nature would be injunction and damages.

Employers may seek for an injunction for breach of confidence by their employees. An employer by obtaining an injunction against the employee would be able to force or circumvent the employee from using or disclosing the confidential information.

However, in order to obtain an injunction, employers must demonstrate irreparable injury and that damages are an inadequate remedy. In addition to the specific reliefs, the employer could also seek damages from court for any loss or damage which the employer suffered as a result of a breach of confidence by the employee.

In determining the quantum of damages, the Court will consider the following:

• the loss of profit to the employer as a consequence of the breach of confidence and the misappropriation/disclosure of confidential information by the employee;
• the amount of profit made by the defaulting employee as a result of the misappropriation/disclosure of confidential information to third party;

The burden of proof in claiming for breach of confidence lies with the employer.

As such, the employer must prove that the employee gained gross profits from the misuse/disclosure of the confidential information.

On the part of the employee, he/she has the obligation to adduce evidence to rebut the allegation made by the employer and the employee must demonstrate that the information is not confidential in nature.

In relation to the above, it should be noted that even when the disclosure has not occurred yet but it is only anticipated, if evidences show that there are both likelihood of undue disclosure and danger of damages to the employer, the Court may grant an interlocutory injunction to prevent such use or disclosure and, in certain circumstances, award damages in lieu of an injunction.

In view of the above, it should be noted that the relationship between employer and employee is a relationship of trust and confidence.

As such, an employee has the obligation to act in the employer’s best interest, which includes protecting the confidential information and trade secrets of his/her employer.

Written by:

Melinda Marie D’Angelus (Partner) melinda.dangelus@azmilaw.com

Komathi Karuppanan (general@azmilaw.com)