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Employment Law

Legal guidance - compliance - software

22 MAR 2012

What Part Of Its Confidential Business Information Can A Client Protect From Exploitation By An Employee Of His Contractor Post-Contract Or Post-Termination Of The Employee's Employment By His Contractor?

By Julian Wilson

That was one of the issues facing Arnold J. in  Force India F1 Team -v- 1 Malaysia F1 Team [2012] EWHC 616 (Ch) (Judgment given on 21 March 2012). As neither counsel was able to cite any authority directly in point, Arnold J had to consider the matter on principle.

The central facts were that Italian wind tunnel aerodynamicist contractors at Aerolab had worked on the design of a half-size wind tunnel model of ForceIndia's F1 car. After terminating their contract with ForceIndiafollowing non-payment, they began work developing a model for the then Lotus (now Caterham) team.

ForceIndia's principal claim was that, in doing so, they and Lotus had misused confidential information relating to ForceIndia's design.

ForceIndiahad entered into an Aerodynamic Development contract with Aerolab containing extensive confidentiality provisions over a wide range of information and material both during and post contract. In addition, ForceIndiahad entered into Confidentiality Agreements with Aerolab's own employees whereby the employees (who as regards ForceIndiawere contractors providing services):

(a)  acknowledged that the agreements between ForceIndiaand Aerolab contained confidentiality clauses and that Aerolab would be communicating with them to inform them of their obligations to Aerolab under these agreements.

(b) agreed to keep information entrusted to them or discovered by them in the course of their work on Force India's projects in complete confidence and not use or attempt to use the information in any manner except for the purposes for which it was disclosed to them;

(c) agreed that their confidentiality obligations to ForceIndiawould continue for 2 years post their employment by Aerolab or post Aerolab's retainer by ForceIndia.

One issue falling for determination was whether the Aerolab employees' obligation to ForceIndiain the post-retainer period extended to the wide range of information covered by the Aerodynamic Development Contract or only trade secrets (i.e. Faccenda class 3 confidential information).  

Arnold J. found that the law relating to employees was that a covenant against post-employment use of confidential information is unenforceable as being in restraint of trade in so far as it purports to prevent the ex-employee from using for his own benefit or that of a subsequent employer information which has become part of his general skill, knowledge and experience: Balston; Ixora Trading. Thus, in the absence of a restrictive covenant in the strict sense (i.e. a non-compete) the position of an ex-employee was the same whether his contract contained an express confidentiality clause or only an implied term, namely that he could only be restricted from using information which was a trade secret or akin thereto. 

Arnold J. held that the post termination confidentiality obligations of contractors providing services were the same as those of employees. Therefore, Aerolab's employees could not be prevented from using information which had become part of their skill, knowledge and experience, even if it was learnt during the course of their work for ForceIndia, when working for Lotus, as opposed to trade secrets.

The question then became what aspects of the information ForceIndiaclaimed to be protected amounted to trade secrets. Amongst the information for which Force India claimed protection was the precise dimensions of the aerodynamic surfaces of parts; details of the modularity of the relevant parts (that is the precise way in which they relate to other parts); and details of the aerodynamic system of the relevant parts (that is the spatial relationship between the parts). In relation to dimensions, the court found that in so far as Computer Aided Design draftsmen used Force India CAD files to take a short cut in designing the Lotus model, they had misused confidential information akin to a trade secret. That information was generally separable from the employees' skill, knowledge and experience, even if some individual dimensions were memorable and could be regarded as forming part of the employees' skill, knowledge and experience. As to modularity, the court found even if certain aspects of the modularity were not in the public domain, this was the kind of information falling squarely within the skill, knowledge and experience of the contractors' employees. As to features of spatial relationship, this was also the kind of information which mainly fell within the employees' skill, knowledge and experience.

The Judgment also provides a useful guide to the authorities on the manner of assessing damages for breach of confidence.

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