439: Ex-employee who set up rival business liable for passing off and breach of confidence

In PSN Recruitments Ltd v Ludley and another, the Intellectual Property Enterprise Court upheld claims for breach of confidence and passing off brought by an employer against an ex-employee and his new company.

Passing off claims may arise where an intentional or unintentional misrepresentation results in the public believing that goods or services offered by the ex-employee are in fact offered by the ex-employer, and damage is caused to the ex-employer because of this incorrect belief.

Mr Ludley was a recruitment agent specialising in gardening who left PSN Recruitments to set up a competing business. Before leaving, he emailed various documents and data to himself, including contact details for PSN’s customers and prospective customers who had previously received marketing communications from PSN. A few days after leaving PSN, Mr Ludley emailed over 500 of PSN’s customers, telling them that PSN had rebranded and giving the details of his own new business, Greenscape, pretending that this was the new trading name for PSN. He also asked these customers to correspond only via Greenscape’s email address in future. PSN brought claims for passing off as well as contractual and equitable breach of confidence.

As regards the passing off claim, Mr Ludley accepted that he had misrepresented his new business as being PSN but denied that damage had been caused as a result. He claimed that his emails to PSN’s clients had been largely ignored. However, the Court found that these emails had caused confusion, and that PSN had in fact suffered a significant and immediate decline after Mr Ludley’s email was sent, partly because their business had been diverted to Greenscape. In addition, Mr Ludley had done nothing to correct his misrepresentation. The passing off claim was upheld and PSN was awarded around £40,000 for loss of profit, £20,000 for damage to reputation, and £1,500 for loss of management time.

Mr Ludley defended the contractual breach of confidence claim on the basis that the client list he had used to send his email was not confidential information. He argued that the information was generally available on the internet and in trade publications. The Court disagreed and also upheld this claim, finding that Mr Ludley had breached the confidentiality clause in his contract of employment. The customer list constituted confidential information within the meaning of that clause, and the transfer of that list to his personal email account during his employment as well as his use of the list to communicate with PSN’s customers were both clear breaches of contract. The Court also upheld a claim for breach of the equitable duty of confidence against Mr Ludley and Greenscape on the basis that they had both used the customer list inconsistently with its confidential nature and had received it in circumstances where they knew it was confidential.

Passing off claims against ex-employees are relatively rare, but this is a blatant example of how a claim may succeed where an employee has made misrepresentations about their ex-employer whilst setting up a rival business. This case also highlights that customer lists can be protected as confidential information and trade secrets, particularly where these are of vital importance to the business. In order to reduce the risk of claims and to deter employees from breaching confidentiality, it is always advisable to include properly tailored clauses in contracts of employment for employees who have access to key customer information.