This post was also written by Fiona McFarlane.
In Caterpillar Logistics Services (UK) Ltd v Huesca de Crean, an employee who had no restrictive covenant in her contract of employment prohibiting her working for a third party, could not be prevented from taking up employment with a client of her former employer on the grounds that she might breach a confidentiality agreement she had entered into with her former employer. Nor would the Court grant a “barring order” which would prohibit the employee from being involved in a commercial relationship between the employee’s former employer and its client.
What happened in this case?
Ms Huesca de Crean (Ms H) had been employed by Caterpillar Logistic Services UK Ltd (CLS) and heavily involved in the management of a relationship with one of CLS’s clients to whom CLS provided services under a 10 year Logistics Services Agreement (the “LSA”). Due to her role in CLS’s business, Ms H had access to a large amount of confidential information regarding the client, which included details of the client relationship and legal advice sought by CLS in relation to the LSA.
Ms H’s contract of employment with CLS included a confidentiality agreement in which she agreed “not [to] use any of such trade secrets of [sic] confidential information for myself or others, or divulge them to others, either during or after my employment”. There was, however, no restrictive covenant in the contract which prevented her from taking up any employment once the contract had ended.
Ms H subsequently accepted an offer of employment from the client. CLS became concerned that Ms H would breach the confidentiality agreement and expose confidential information to the client. CLS sought a “barring order” with the purpose of preventing Ms H from being involved with the commercial relationship with CLS or in any dealings under the LSA in her new role with the client. CLS also sought an injunction prohibiting her from using or disclosing confidential information in her employment with the client.
The Court of Appeal (CA) considered the case of Prince Jefri Bolkiah v KPMG where the Court upheld a barring order to prevent accountants KPMG from acting as an expert for a party to a claim: KPMG had acted for the other party to the claim and therefore was in possession of confidential information about that party. The CA agreed with the reasoning in a recent Hong Kong case which examined the English law on the question whether an employee may be a fiduciary and which concluded that this type of barring order could be made to protect the solicitor/client relationship but it was not appropriate to extend this type of order to the employer/employee relationship. The CA said that, whilst as an employee, Ms H owes certain fiduciary duties to the employer, this did not make her a “fiduciary” in the sense that a solicitor is to their client. In the absence of post-termination restrictions in Ms H’s contract of employment, there was therefore no justification for making an order preventing Ms H from being involved in the LSA or otherwise in the commercial relationship with CLS in her new role with the client.
Injunction to restrict use of confidential information
Due to Ms H’s exemplary record, CLS had no grounds on which to allege that Ms H would be likely to breach the confidentiality agreement deliberately. In fact, Ms H had already provided an undertaking to CLS that she would not breach the terms of that confidentiality agreement. CLS had no arguable case that Ms H had breached, or intended to breach, or even that there was a real risk that she would breach the terms of the confidentiality agreement. Ms H had voluntarily given relevant undertakings that she would not breach its terms and thus the appeal was dismissed.
What this decision means for employers?
This case highlights the importance of having appropriate restrictive covenants in the contract of employment in order to prevent an employee working for a competitor where its confidential information might be misused. An employee cannot be regarded as a fiduciary in the same way that solicitors and some other professionals are in relation to their clients. The CA confirms that in the absence of an appropriate restrictive covenant in the contract of employment, the Court will not act to protect the confidential information of an employer, without reasonable grounds for believing that the information has been or may be deliberately leaked in breach of any contractual obligation of confidentiality. Where confidential information is protected by such an obligation, the Court will require the employer to prove an employee’s wrongdoing before it will intervene. On the other hand, where there is an appropriate restrictive covenant (such as non-solicitation of clients or non-compete), the Court will intervene and grant the employer an appropriate remedy (such as injunction prohibiting the employee from working for a competitor for a specified and reasonable period).
Another lesson to be learnt from this case is a reminder for employers to act quickly where there is the possibility that their confidential information may be leaked to a third party to ensure that any deadlines for service of a claim are met. Burton LJ, who prepared the key judgment, criticised the practice of postponing the service of Particulars of Claim until after an interim injunction had been dealt with. Employers should therefore be prepared to apply for injunctive relief whilst simultaneously preparing the Particulars of Claim for the main claim for service.