In an industry where customer relationships and client contacts are key, a travel business’s confidential information is always likely to include traveller names, addresses, contact details and booking information. When an employee leaves a travel business, there is inevitably a risk that, unless properly protected, the confidential information of the business could leave with them.
The Court of Appeal, in a judgment handed down on 19th January 2021, has dismissed an appeal brought by Travel Counsellors Limited against a decision in the Intellectual Property Enterprise Court (IPEC) that the company breached its obligations of confidentiality after using client information brought by employees of its competitor, Trailfinders Limited.
In a case which confirms that a recipient of confidential information should make enquiries as to the confidentiality of that information if a reasonable person in their position would have done so, there are vital issues to be addressed for all travel businesses who rely on their workers, employees, consultants and home-workers to bring with them their own client contacts.
Between 2016 and 2020 over 40 travel consultants left Trailfinders to join Travel Counsellors’ franchise model as homeworkers. Proceedings were brought by Trailfinders against Travel Counsellors and four former employees, with Trailfinders alleging that when their former employees left the business they took with them names, contact details and other pertinent client information stored in the business’ computer systems. Further, after the employees left the business, they accessed Trailfinders’ computer systems again to obtain further client information, which was then passed on to Travel Counsellors and added to their client lists.
Court of First Instance
To ensure that the trial could be completed in two days (as required by IPEC rules of procedure) Trailfinders pursued their case to trial against Travel Counsellors and only two of the four individual defendants – Mr La Gette and Mr Bishop.
The evidence put before the Court was that:
- Mr La Gette copied client information in respect of 5 to 8 Trailfinders clients onto an A4 sheet of paper on his last day of working for the business, for the purposes of his new role at Travel Counsellors.
- Mr La Gette also printed two hard copies of client information relating to a particularly high value and long standing client of Trailfinders. .
- Mr Bishop, in his last six months at Trailfinders, assembled a ‘contact book’ with the names, contact details and booking reference numbers of clients he had dealt with. The majority of this information was sourced from Trailfinders’ computer systems. Mr Bishop took the contact book with him when he left and supplied the information contained in it to Travel Counsellors.
- Mr Bishop had, after the end of his employment with Trailfinders, accessed the records of 32 Trailfinders’ clients stored on the business’ computer systems – again, with the aim of providing this information to Travel Counsellors.
His Honour Judge Hacon concluded that in taking this confidential information and supplying it to a competitor, Mr La Gette and Mr Bishop had both breached implied provisions in their contracts of employment. Notably, these are not express confidentiality provisions, but confidentiality provisions implied by law on the basis that an employee owes a duty of fidelity and good faith to his employer.
The Court found that, by virtue of this duty of good faith, there were implied terms of confidentiality in those contracts, which both individuals had acted in breach of.
In addition, both individuals owed an equitable duty of confidence to Trailfinders. This equitable obligation arises where the recipient of the relevant information appreciated, or ought to have appreciated that it was confidential. In disclosing information which they knew, or ought to have known was confidential, that duty was breached.
HHJ Hacon found, in respect of Travel Counsellor’s role:
- Travel Counsellors did not supply new franchisees/home-workers with potential customers – they were expected to provide their own. In respect of individuals coming from another travel business, they were expected and encouraged by Travel Counsellors to bring their customer contact list with them, and were not warned by Travel Counsellors of any legal risk in doing so.
- Travel Counsellors added the client information brought from Trailfinders by Mr La Gette and Mr Bishop to the Travel Counsellors computer system.
- A reasonable person in the position of Stephen Byrne, Travel Counsellor’s CEO (and other persons of significance within Travel Counsellors) would have been aware that at least part of this information would have been likely copied from Trailfinders’ customer data.
Accordingly, the Court found that Travel Counsellors received such information subject to an equitable duty of confidence. In using the confidential information provided for the benefit of its business, Travel Counsellors was in breach of that duty of confidence.
The Court ruled in Trailfinders’ favour and found that Mr La Gette, Mr Bishop and Travel Counsellors had effectively broken the law by their actions.
Court of Appeal
Travel Counsellors appealed the decision of HHJ Hacon on three grounds:
- That the judge applied the wrong legal test in holding that Travel Counsellors owed an obligation of confidence to Trailfinders in respect of the confidential information which it received from Mr La Gette and Mr Bishop.
- That the judge’s approach to the question of what Travel Counsellors ought to have understood about the information provided to it was wrong.
- That the judge erred in holding Travel Counsellors liable for breach of confidence despite making no findings that Travel Counsellors had misused any confidential information.
Travel Counsellors did not challenge the judge’s conclusion that the information which was disclosed to them by Mr La Gette and Mr Bishop was information which was confidential to Trailfinders.
The three Court of Appeal Judges found as follows, on each of the grounds raised above.
- If the circumstances are such that the recipient of the information has it brought to their notice that the information is, or may be confidential, and a reasonable person in that recipient’s situation would make enquiries about the confidentiality of that information, then an obligation of confidentiality will arise where the recipient fails to make those enquiries.
- Though the judge had previously stated in his judgment that ‘by itself, the existence of clients which were common to both Trailfinders and Travel Counsellors proved nothing’, he had then gone on to consider and make findings as to what Travel Counsellors knew or ought to have known about the client information it received. There was no inconsistency in the Judge’s findings.
- The extent of the misuse of confidential information was not a question of law but an issue for the quantification of damages, and as such should be dealt with at the assessment of damages stages. No errors had been made by the trial judge.
For the reasons given above, the appeal was dismissed, and the decision of the Court of First Instance (IPEC) was upheld.
This case and its subsequent appeal are significant for a number of reasons.
Much was made in the trial of Travel Counsellor’s expectation that their franchisees bring with them their own client lists. The brochure which they provided to potential franchisees read as follows:
“If you’re coming from a travel background already, feel free to bring your old customer contact list along with you. We’ll add them to your Contact Centre ready for your first day – a great start to a rewarding career running your own travel business.”
The Court found it improbable that Travel Counsellors could believe that Trailfinders did not regard their customer lists (including names and details of customers) as confidential.
Secondly, the ability of Trailfinders to rely on implied terms of confidentiality in its contracts of employment was significant. Whilst we would always advise that well-drafted employment contracts with appropriate confidentiality and anti-compete clauses will stand you in good stead for any future issues with employees, the duty of fidelity and good faith which an employee owes to its employer may be relied upon in these cases.
Thirdly, the finding of the Court of Appeal is significant because it introduces a new test for misuse of confidential information, which may impose a greater burden on a recipient of potentially confidential information to make enquires as to the nature of that information.
- If the circumstances are such as to bring it to the notice of a reasonable person in the recipient’s position that the information (or some of it) may be confidential to another, then the reasonable person’s response may, depending on the context and the facts, be to make enquiries.
- If the reasonable person would make enquiries, but the recipient abstains from doing so, then an obligation of confidentiality will arise.
This will be significant when bringing any new person into a business. Are they bringing any client data with them? If so – where did it come from, and do they have the relevant legal standing to pass it on to you? If not, their breaches of confidence could result in your business being drawn into a lengthy and costly claim.
Comment from Ami Naru – Head of Employment
“This case is an important and timely reminder in the current climate that a business’s most important assets can come in the form of intangible confidential information. Protection of this confidential information is crucial to a travel company’s commercial success, but is often overlooked when considering employment issues. We all know that client relationships are king in the travel industry, and this case is a pertinent example of what that really looks like in practice, when the confidential information giving access to those relationships is mishandled.”
- Mark documents which are confidential clearly as ‘Confidential’.
- If your employees have access to customer and client databases, ensure make sure that access is revoked at an appropriate time when they leave to go to a competitor.
- Ensure that your database security is up to date, with all relevant files encrypted and/or password protected.
- Your employment contracts and internal data protection and confidentiality policies are key to protecting your vital customer information. Make sure that these are up to date and enforceable. Take legal advice if you are unsure.
- Ensure that all employees (especially after they have handed their notice in) are aware of their legal responsibilities. An explanation of the consequences of the consequences of their actions in taking client information with them could help you to avoid costly litigation.
The judgment discussed in this article can be read in full here: https://www.bailii.org/ew/cases/EWCA/Civ/2021/38.html.
If you have any questions about the issues raised in this case, and want further advice on protecting your confidential information, contact Gemma Wilson in the Commercial and Corporate Governance Team on email@example.com
If you require assistance in relation to your employees and employment contracts, contact Ami Naru, Head of Employment, on firstname.lastname@example.org
This article was originally published on: 24 February 2021