392: High court rule on former employees setting up competing businesses

Employers often have to decide whether to take action against current or former employees who have taken confidential information or trade secrets in order to set up in competition or to assist a competitor. Express and implied contractual terms, and separate confidentiality agreements provide some protection in these situations, but equitable doctrines which apply independently of a contract can also be helpful. The scope of the equitable claim of breach of confidence has been clarified recently in Weiss Technik UK Ltd and others v Davies and others, a case against four former employees who had established a competing business using Weiss’ confidential information and software.

Weiss Technik Group is a leader in the field of environmental simulation and air systems technology and has robust internal policies and procedures to prevent IP theft. Its contracts of employment and staff handbook also contain express confidentiality clauses. Between 2015 and 2018, four former employees obtained significant amounts of confidential material and software from Weiss. This included information obtained via their personal email accounts whilst still employed. One ex-employee used this information and IP to establish a competing business, SJJ System Services Limited (SJJ), and to divert customers from Weiss by sending direct marketing emails to addresses obtained from the database. By means of a without notice search and imaging order, Weiss discovered that SJJ had taken proprietary software packages and passwords, customer databases and other confidential and copyright documents.

In a complex case lasting four years, Weiss has now secured judgment against the four former employees and SJJ for breach of confidence, copyright and database right infringement, and inducing breaches of contract. The evidence from the former employees was held to be inconsistent, deliberately evasive, and unreliable. Most importantly, the High Court established that the mere fact of copying confidential information for the purpose of a competing business was an equitable wrong that did not require Weiss to show loss or damage.

Whilst the facts of this case are extreme, the High Court’s judgment is helpful for employers. It was unclear from previous case law whether it was necessary to show detriment in order to establish an equitable breach of confidence claim. The Court has now confirmed that employers do not need to overcome the difficult hurdle of proving that they have suffered loss or damage where confidential information has been obtained by ex-employees for the purposes of setting up a competing business or disclosure to a competitor. It will be sufficient to show that the ex-employees have deliberately and surreptitiously obtained, copied and stored confidential information in circumstances where they knew or should have known that it was confidential.

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