PROTECTION OF CONFIDENTIAL INFORMATION BETWEEN

EMPLOYER AND EMPLOYEES

Gargi Chakrabarti*
Law of confidential information is a branch of intellectual property law which protects the
secrecy of information. Information needs to qualify as a confidential one and mostly it is
important in a commercial or industrial context. Employer employee relationship is very
special situation regarding law of confidential information, as during employment employers
are ought to share some confidential information with the employees and employees are
subject to the duty of confidentiality to protect the secrecy of such information. Sometimes
employers put restrictive covenants as a contract of employment which includes some clauses
valid even at post-employment period. There must always be a balance between the interests
of employers and employees and that needs to be maintained in both ways. India is yet to come
up with the specific legal regime for the protection of confidential information, especially in
the view of its ever-growing industrial and commercial activities in the global market. The
provisions and suggestions are mentioned in this article which is good for the Indian
employers to follow to protect their confidential information and to exist in this competitive
scenario.
Key Word: confidential information, employer employee, Intellectual Property rights.
I.

Introduction ................................................................................................................................................................... 2

II.

Definition and Nature of confidential information .................................................................................. 2

III. Position in United Kingdom .................................................................................................................................. 4

A.

During employment obligation in UK ......................................................................................................... 4

A.

Post employment obligations .......................................................................................................................... 7

B.

Faccenda case regarding confidential information ............................................................................ 9

B.

Position in United States of America .............................................................................................................. 11

C.

Springboard Doctrine ............................................................................................................................................. 15

D.

Indian Position Need for Change................................................................................................................... 16

E.

Conclusion ..................................................................................................................................................................... 21

* Gargi Chakrabarti, Researcher, Centre of Intellectual Property Right Research & Advocacy,
Ministry of Human Resource Development, National Law School of India University, Bangalore.
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Electronic copy available at: http://ssrn.com/abstract=2214559

Gargi Chakrabarti

I. INTRODUCTION
The success of any corporation or organization mainly depends upon sensitive processes
and technological supremacy; but trade secret is another important matter which needs
protection to maintain the competitiveness in the market. The employers are keen to take
all forms of protective measures for safeguarding such confidential information from any
kind of misuse. The area of law which deals with laws of confidence is concerned with the
secrecy of information and tries to protect the same. Firstly, that information must have a
necessary quality of confidence, so it should not be in the public domain. In a commercial or
industrial context this might be a trade secret. To test that the information has necessary
quality of confidence there are some elements that should be scrutinised, so there is a need
to evaluate the value of the information to the company and to its competitors and to
capital or effort spent for generating the information; and on the other hand the effort of
the competitors to use that information. Protection of confidential information in terms of
employees in this age of information technology is crucial to protect any new formula,
product, technology, customer lists, or future business plans.
In the global marketplace, Indian corporations are often obligatory to meet the terms with
foreign laws and are likely to be exposed to responsibility for breach of confidential
information or trade secrets of their business partners or third parties. In India there is no
specific legislation for confidential information, but in this article provisions of UK and US
law are described elaborately to clear the concept of protection of confidential information
under employer and employee relationship.

II. DEFINITION AND NATURE OF CONFIDENTIAL INFORMATION

A new form of intellectual property has gained recognition in recent years is known as
Trade secret and it is this form of intellectual property with which we are concerned here.
Trade secret can be defined as information having commercial value, which is not in the
public domain, and for which reasonable steps have been taken to maintain its secrecy. The
2

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TRIPS has given three essential conditions which is to be fulfilled before considering an
information as trade secret. Firstly, such information must be secret, i.e. not generally
known or accessible to the persons within the circles that deals with the kinds of
information in question. Secondly, such information must have commercial value. Lastly,
such information must be subject to reasonable steps by its owners to keep it secret.
The Uniform Trades Secrets Act, 1970 also provides for the definition of trade secrets,
which is as follows:- Information, including a formula, pattern, compilation, program device,
method, technique, or process, that: (i) derives independent economic value, actual or
potential, from no being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or use, and (ii) is
the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Importance of trade secrets in industrial economy is increasing rapidly with the industrial
inflation and this is because the quick change of technology involves more information and
thus stricter law is required to protect confidential information in the form of trade secrets
for maintenance of competitiveness as well as to encourage invention and innovation.
Protection of valuable trade related information from misuse by any employee is a big
challenge for the employers as well as for the lawmakers. Compared to other forms of
intellectual property rights, it has some practical positive factor; like there are no
bureaucratic delays and no multiyear waits for government grants, such as those for
patents. Trade secret rights, in contrast, can be established by the agreement between the
interested parties. A trade secret right starts upon the formation of the idea in some
concrete form, and persists as long as secrecy is preserved. Protection of information which
does not qualify to be protected as intellectual property within the legal framework of
Intellectual Property Laws can also be protected by Trade Secrets. It also has the advantage
of being lasting forever, again, as long as secrecy is maintained. There are some negative
aspects of protection of information as a trade secret. It is a volatile form of protection, and
it terminates when secrecy is lost. Also, it requires constant vigilance for better protection.

Gargi Chakrabarti

III. POSITION IN UNITED KINGDOM

In the United Kingdom case law based interpretation of properties of confidential
information is quite concrete and commendable. First major case was Saltman Engineering
Co Ltd v. Campbell Engineering Co Ltd1. While delivering the judgment Lord Green M.R.
described the nature of confidential information as The information to be confidential,
must, I apprehend apart from the contract, have the necessary quality of confidence about it,
namely it must not be something which is public property or public knowledge. On the other
hand, it is perfectly possible to have a confidential document, be it a formula, a plan, a sketch,
or something of that kind, which is the result of work done by the maker upon materials which
may be available for the use of anybody; but what makes it confidential is the fact that the
maker of the document has used his brain and thus produced a result which can only be
produced by somebody who goes through the same process.
Lord Greene also said that the obligation of confidence is not limited to cases having
contractual relationship; law will always prevent the abuse of information. Lord Megarry
had given the working formula for application of law of confidence in the case of Coco v AN
Clark (Engineers) Ltd.2 According to him the doctrine of confidence required three elements
Firstly, information must have the quality of confidence; Secondly, information must have
been imparted in importing an obligation of confidence. Thirdly, there must be
unauthorised use of that information to the detriment of party communicating it. Certain
types of information can be considered to be confidential in nature because the subject is
one which, in normal circumstances, would generally not be disclosed to the public. Any
type of information could qualify as being confidential in nature not just information which
highly complex, valuable or technical in nature.

A. DURING EMPLOYMENT OBLIGATION IN UK

1

[1963] 3 All ER 413

[1969] RPC 41

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The general law allied to breach of confidence forbids an employee from using the
information which can be recognized as the possessions of his/her employer in a way
which is directly or indirectly harmful for the employers business. Moreover, it is also
impossible for an employer to keep the important trade related information secret from all
the employers, especially who are holding higher designations and responsible for the
proper functioning of the company. There are some express duties, as in case of the
contract of employment and some implied duties which are not expressed in a contract, but
still bind the employees in a duty of confidence in an employment relationship. The
contract of employment includes the provisions dealing with nature and scope of duty of
confidence imposed on the employee by the employer. This contract of employment is
subject to the general rules of contract, section 1 of the Public Interests Disclosure Act 1998
and s.439J of the Employment Rights Act 1996 are important in this respect. It is important
that express terms of contract should have a clear and an unambiguous statement to
strengthen the duty of confidentiality. This would also focus the employees attention on
the importance of not misusing confidential information for the benefit of himself/herself
or any third party. The duty imposed on employees is illustrated by Hivac v. Park Royal
Science Instruments Ltd.3 the plaintiffs competitor, was retrained from employing Hivacs
employees. The employees had been working for the defendant in their spare time and
there was no proof that they had disclosed any confidential information, still the Court of
Appeal accepted that there was a potential risk that this could happen.

In the absence of a contract with an express clause relating to the duty of confidentiality,
the courts have suggested that employees are under implied duty of confidentiality to their
employer during employment. That duty of confidentiality prevents employees disclosing
the information, especially which might potentially do any harm to the employer. It also

[1946] 1 All ER 350

Gargi Chakrabarti

prohibits the employee from deliberately setting out to obtain information for his own or
someone else's use after the services come to an end. In Attorney General v. Blake4 the Court
of Appeal stated that, the employer is entitled to the single minded loyalty of his employee.
That employee must act in good faith; he must not make a profit out of his trust; he must not
place himself in a position where his duty and his interest may conflict; he may not act for his
own benefit or the benefit of a third party without the informed consent of his employer. That
is why it is a breach of the obligation to remove a customer list or deliberately to set out to
memorise it with the intent of later using it, i.e. post-employment period. So, it can be
considered that the exploitation of information is just extension of original breach of faith.
In this situation employer should be concerned to ascertain whether the employee is
engaged in wrong doing in relation to the information. Criminal law is not applicable in that
situation, but the employer will therefore need to look to civil liability. On the other hand, if
the same list has come into the employee's hands or head as a matter of course and no
special effort has been made to retain it, either physically or mentally, the employee is free
to disclose or use whatever is later recalled of the list, without being in breach of the duty.
Departing employees are of special interest to the employer and also for their rival
companies. The information about the enterprise which they take away with them often
makes them prime targets for competitors who will profit by that information.
Technological developments constitute a double-edged sword for enterprises in this
respect. While the use of technology may help the enterprise to improve its commercial
position, such reliance correspondingly increases the loss that will flow from a leakage of
information about that technology to a competitor.

A certain element of inconsistency, however, is introduced by two recent decisions. In

Independent Management Resources Pty Ltd v Brown5 and Balston Ltd v Headline Filters Ltd6

[1998] 1 All ER 833

[1987] VR 605.

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it was held that employees had not breached their duty of fidelity by spending their last
days of employment preparing for future (and competitive) business activities. In the
former case the defendant was employed by the plaintiff, a public relations consultant. One
of the plaintiff's major clients decided to terminate the plaintiff's engagement and call for
tenders. The defendant obtained a copy of the client's brief, on which tenders were to be
made. She then resigned from the plaintiff's service and successfully tendered for the
client's work. In the Supreme Court of Victoria, Marks J held that the plaintiff had done
nothing to fraudulently undermine her employer. Similarly, in Balston the defendant,
while serving out a period of notice to end his employment with the plaintiff, bought a
company off the shelf which he intended to (and did) establish as a rival supplier of glass
microfibre filter tubes. He also contacted one of the plaintiff's customers to inform it of his
new venture, a move which resulted in the customer placing an order with the defendant's
company. Although Scott J considered that an arguable case for breach of the duty of
fidelity existed, he was clearly inclined to discount such a conclusion. He stressed that
during the relevant period the defendant was only technically still employed and
commented that if he had still been actively employed the position might have been
different.

A. POST EMPLOYMENT OBLIGATIONS

In spite of the general law provisions, employees leaving their employer and setting
themselves up in competition with employer cant be stopped. Moreover, there is no
regulation of law or equity that prevents a company or individual from looking out a
competitors employees and offers them employment, provided that there is no breach of
the employees covenant. Once the employment is terminated usually employers include
some clauses called restrictive covenant in their contract of employment according to
which the employee will not permitted to work in the same industry for a specified period
of time. Even in the absence of such a clause the courts employ certain limited obligations

[1987] FSR 330.

Gargi Chakrabarti

on the ex-employees to make use of information acquired during course of employment.

While employers tries to protect themselves by putting in restrictive covenants, the law
also feels that employees should be free to make use of the personal skills, knowledge,
experience and abilities gained during course of their employment. The restraint of trade
clause will only be enforceable if it is appropriately limited as to time, geographical
applicability and scope of activities.
In Fellows v. Fisher7 a restrictive covenant imposed to restrain a conveyancing clerk on a
year contract from working in the legal profession for five years in Walthamstow and
Chingford, was too broad in scope, in geographical coverage as well as in duration, so the
court dismissed the restraint. But in Polylina v. Finch8 the court held that the clause
prohibiting the defendant from doing any competitive trade or business with plaintiff for
one year to be valid. In case of Mont v. Mills,9 though the defendant had signed the
agreement and taken a large amount of money as well, for not joining another company in
same industry for one year; when he failed to keep the promise and joined the competitor
company the claimant sought an injunction. But the Court of Appeal held that the
agreement was unenforceable on the basis of unjustifiable restraint of trade. So, it is clear
that law would permit an employer to buy restraint but the public policy was clearly
protecting the public interest in competition and proper use of an employees skills.
In some cases a lifelong obligation of an employee subsists, as in the case of Attorney
General v. Blake,10 where defendant being a member of intelligence service was not
permitted to disclose any official information gained during employment for life.
Sometimes

a company, while restraining an employee from entering into similar

employment, often place employees on garden leave, in which the employee remains as a
7

[1976] QB 122

[1995] FSR 751

[1993] FSR 577

10

[1998] 1 All ER 833

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paid employee for a specified period of time, as in case of Credit Suisse Asset Management v.
Armstrong.11

B. FACCENDA CASE REGARDING CONFIDENTIAL INFORMATION

In this regard it is worth mentioning about the case of Faccenda Chicken v. Fowler.12 Fowler
was the sales manager of Faccenda Chicken Ltd., who adopted the unique sales policy. After
resignation he started his own business with the same sales policy in the same area using
some sales information and from FCL five other salesmen joined him. FCL initiated legal
action against them. The Court of Appeal in giving judgement has divided the information
into three categories and mentioned specifically about the obligations of the employees
regarding them. Firstly, information which is trivial in character and easily accessible to
public sources which the employee has the liberty to disclose it, even during service.
Secondly, information which is confidential but which once learned in the head of the
employee becomes part of his own skill and knowledge. During employment he cannot use
or disclose such information but that allows him to use his full skill and knowledge for his
own benefit, even in competition with his employer after employment Lastly, specific trade
secret which an employee cannot use or disclose even though not in service.

Further in the Faccenda case, the Court of Appeal said whether information amounts to a
trade secret or not would be decided considering four factors: Firstly, the nature of
employment. Secondly, the nature of information. Thirdly, whether the employer expressed
the confidentiality of the information to the employee? Fourthly, whether information can
easily be isolated from other information which the employee is free to use or disclose. As
Faccenda and subsequent cases show, it may be very difficult for an employer to prove that
11

[1996] ICR 882

12

[1985] 1 All ER 724

Gargi Chakrabarti

information has been kept sufficiently secret for it to be unavailable for the employee's use
when the period of service ends. The Court of Appeal rejected the claim on the basis that
neither the information about prices nor the sales information as a whole had the degree of
confidentiality necessary to support the plaintiff's case. Particularly important factors in
this decision were that much of the information in the package was acknowledged by the
plaintiff not to be confidential at all, that the information was not restricted to senior
employees, being known to van drivers and secretaries; at quite junior level, and that the
plaintiff had failed expressly to instruct its employees as to the confidentiality of the
information.
In FSS Travel & Leisure Systems Ltd v. Johnson13, it was stated that it is critical to distinguish
the trade secrets that the employer could claim as his property from the skill, experience,
know-how and general knowledge that the employee could regard as his property, as only
the former could be subject to an obligation. The courts have also been particularly
concerned to ensure that employers who seek injunctions to restrain the use of confidential
information should be able to specify what is secret and what is not. Failure to do so may
result in the claim being rejected, even where it is apparent that some genuinely
confidential information must be involved. The employer's difficulties in establishing a
breach of the duty of confidentiality do not end with the need for specificity. In recognition
of the interest of both employees and the public generally in mobility of labour, the courts
have adopted an overriding principle that certain information is never protectable at the
suit of employers. This information is variously described as the employee's subjective
knowledge or know-how or stock of knowledge. In A. C. Gibbons Pty Ltd v. Cooper14 a
technician who serviced dishwashers was allowed to use knowledge of his former
employer's customers to set up in competition without inquiry as to whether he could
practicably have worked as a technician for another firm if precluded from using that

13

[1999] FSR 505

14

(1980) 23 SASR 269.

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information. Again, in Ormonoid Roofing and Ashphalts Ltd v. Bitumenoids Ltd15

an

employee was entitled to disclose to his new employer details of the plaintiff's machine;
there was no evidence to show that such disclosure was crucial to his future employment.
To summarise then on the post-employment duty of confidentiality: assuming that an exemployee has not breached the duty of fidelity in acquiring information in the course of
employment, that information may be freely used if it is not truly confidential to the
employer, lacking the element of secrecy; or it constitutes know-how. The latter category
includes not only information which the ex-employee needs to be able to use in order to do
a trade, but also information which cannot practicably be separated from the employee's
other knowledge and which is thus not considered amenable to a specific injunction
restraining its use or disclosure.

B. POSITION IN UNITED STATES OF AMERICA

In the United States of America it is found that employees liability is seen in the same way
as in United States. But the U.S. context is mostly based on the trade secret which is the
third category of information according to Faccenda classification. The misappropriation of
trade secrets is now a federal criminal offence in the United States, after the enactment of
the Economic Espionage Act of 1996. All states have civil statutory or common law trade
secrecy laws. Many also have criminal laws prohibiting the misappropriation of trade
secrets. However, prior to the passage of the Economic Espionage Act, there was no
uniform federal criminal law of trade secrecy.
The Economic Espionage Act defines a trade secret as any financial, business, scientific,
technical, economic or engineering information. It lists a number of types of information
that are included as trade secrets, whether tangible or intangible and regardless of how
they are stored, compiled or memorialised physically, electronically, graphically,
photographically or in writing. In order for information to qualify as a trade secret, the
15

[1930] 31 SR (NSW) 347

11

Gargi Chakrabarti

owner must have taken reasonable steps to keep it secret. In addition, the information
must derive actual or potential independent economic benefit from not being generally
known to the public. That value must also be derived from the information not being
readily ascertainable by the public through proper means. The Act makes the different
forms of economic espionage.16
In the U.S., employers take either of two precautions to restrain the departing employees
from using or disclosing the information; taking the employees agreement not to engage in
post employment competition and to upon departure, seeking to enjoin the employees
disclosure or use trade secrets imparted by the employer. According to U.S. approach there
should be a balance in the legal protection of information to provide benefit to the society
as a whole from the technological improvements.
In Cybertek Computer Products Inc. v. Whitfield, plaintiff was engaged in the business of
furnishing computer related services to the life insurance industry. Defendant Whitfield
was one of the founding officers of the plaintiff. He had purchased shares in the plaintiff
and was involved in the design and development of plaintiffs new on-line business
computer system, the Auto/Issue System. He had management responsibilities initially
and then he was a senior analyst of designing, programming and testing. Whitfield had
signed an Employee Non-disclosure Agreement, the agreement mentioned that he would
not at any time disclose to anyone outside of plaintiff any information about plaintiffs
products related to design, use or development of products. Afterwards he resigned and

16

Economic Espionage Act :(a) the stealing, unauthorised appropriation, taking, carrying away, concealment

or obtaining of a trade secret by fraud, artifice or deception; (b) the unauthorised copying, duplication,
sketching, drawing, photographing, down-loading, uploading, alteration, destruction, transmission, delivery,
sending, mailing or communication of a trade secret; (c) the receiving, buying or possession of a trade secret
known to have been stolen, appropriated, obtained or converted without authorisation; (d) attempting to do
any of the acts described in items (a)-(c) above; and (e) conspiring to commit any of the offences described in
items (a)-(c) above.

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joined the defendant company, Tracor, for the development of an insurance on-line new
business system called Trac/70 which had come in competition with plaintiffs Auto/Issue
System. Plaintiff always had taken certain special security measures for confidentiality
purpose, Tracor had found to be taken similar steps related to security. Plaintiff contended
that Whitfield had disclosed the trade secrets and confidential information regarding
Auto/Issue System. In the course of trial court had found that the confidentiality agreement
was valid and was an important factor for consideration. Court had also held that issues
related to design and development of Auto/Issue System constitutes trade secret or a
highly confidential matter and Whitfield had breached his confidential duty to plaintiff.
In that case it was found to be difficult to define trade secret in a highly technical area such
as computer software programmes. Section. 757 of the Restatement of Torts defines trade
secret by a simple definition, which widens the scope by stating that exact definition of
trade secret is not possible. Certain factors are given to determine existence or nonexistence of a trade secret, such as the extent of information known by others outside the
employees of the business, the extent of measures taken to guard the secrecy of the
information, the value of information, the effort and expense involved in developing it and
the ease with which the information can be acquired by the employer. The general concept
of a technical matter is not protectable as trade secrets. But some cases like the case of
Winston Res. Co. v. Minnesota Mining & Mfg. Co. had established that a combination of
general concepts could amount to a trade secret. Likewise in this case the court found that
combination of general concepts which was utilized and developed in Auto/Issue System
constituted trade secrets. Whitfield had not taken any actual documentation of information
or physical material related to Auto /Issue system so he denied any disclosure of
confidential information. But court held that there were substantial similarities in
Auto/Issue System and Trac/70 and plaintiff presented evidences that similar choices of
design were utilized by defendant and it was proved to be copying rather than independent
development. Whitfield as well as Tracor were held liable of misappropriation of trade
secrets under s. 757 of Restatement of Torts.

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Gargi Chakrabarti

Sometimes customer list also qualify as trade secrets as in the case of Webcraft
Technologies Inc v. McCaw;17 McCaw was a former sales representative and she had signed
an employment agreement with Webcraft which restricts the disclosure of trade secrets
and the agreement defined the trade secret as including names of Webcrafts customers
and pricing information and other information or data related to Webcrafts business
which is not publicly known. The evidence showed that Webcraft spend enormous time
and effort to prepare customer list and it included special information of customers
operations and need. So, court held that Webcrafts customer list could be taken as trade
secrets and protected thereon.
Two types of covenants are relevant: the nondisclosure agreement and the covenants not
to compete. In Cybertek, Court had given importance on the nondisclosure agreement and
in Morrison Metalweld Process Corporation v. Valent, Court had given importance on
covenants not to compete. In Iroquois Industries Corporation v. Popik, defendant Popik had
to sign an employment agreement containing both nondisclosure covenant and covenant
not to compete, however, court noted that the prevention of competition, per se, is an
unreasonable purpose which render the covenant unenforceable. In Pepsi Co Inc. v.
Redmond, plaintiff Pepsi Co. sought a preliminary injunction against defendant William
Redmond to prevent him joining in Quaker Oats Co. Redmond was general manager in
Pepsi Co. of Northern California Business Unit and had signed a nondisclosure agreement
with PepsiCo. But when he joined Quaker violating the agreement, Pepsi Co. sought him
because he knew a number of trade secrets. The court held that Redmonds new job posed
a clear threat of misappropriation of trade secret but ultimately plaintiff had failed to prove
any indication that the defendant would ever use any confidential information, finally
Redmond was ordered to join Quaker but court prevented him forever from disclosing
Pepsi Cos trade secrets.
In Reed Roberts Associates Inc v. Strauman, defendant Strauman signed a covenant not to
compete that he would as employee, owner, partner, agent, stockholder, director or officer
17

[1987] 674 F. Supp. 1039

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of any business of type and character like Reed within certain geographical area for a
period of three years after employment. But violating the covenant he started his own
business in the same municipality. Reed alleged Strauman, but Reed was more concerned
about Straumans knowledge of particular business operation and there was no wrong
doing for which Strauman should be prohibited from using his knowledge; so, judgment
went against Reed. The decisions of these two cases create a confusion regarding validity of
both types of restrictive covenants and open up different questions related to the interest
of employer. In order to determine whether the duty of confidence has been breached, it is
necessary to determine the scope of the obligation.
The scope of obligation is tested via the limited purpose test, which implicate that when
implication is imparted for a limited purpose, then it may give rise to an obligation of
confidence. Where information is supplied for some specific purpose, then it should not be
used for the other purposes. In case of Smith Kline & French v. Department of Community
Health SK&F had supplied the information concerning the drug as a part of application to
the Dept. of Community Services. But the Department of Community services used that
information to determine whether it should authorize another company to sell a related
drug. SK&F applied for the injunction to stop the use of data supplied by them. But Federal
Court of Australia denied grant of injunction and held that scope of obligation did not
restrict the department use of that information as it was the old practice and according to
the court it was necessary to have regard to the effect of the legal framework within which
the parties were dealing. Simon Brown L.J. stated that reasonable person test is a test
useful for determining the duty of confidence, but it did not give the guidance to the scope
of obligation of confidentiality. To consider the scope of obligation of confidentiality, Simon
Brown L.J. said that the touchstone by which to judge the scope of the duty and whether or
not it has been fulfilled or breached is his own conscience, no more and no less.

C. SPRINGBOARD DOCTRINE

15

Gargi Chakrabarti

In addition to not making any unauthorised disclosure, the employee must not make use of
the confidential information in an unfair manner. Therefore, he must not use the
information as a springboard for other activities which may give the recipient an unfair
advantage over or be detrimental to the employer of the information. In such cases, a court
may grant an injunction to stop the employee from using it for a period which is calculated
to offset the unfair advantage the employer would otherwise have had. This is called the
springboard.
The springboard doctrine recognizes that often what makes information confidential is the
fact that the maker of the document has used his brain and thus produced a result which
can only be produced by somebody who has gone through the same process. When an
employee misuses confidential information, they generally avoid having to go through the
same laborious, time consuming process, thereby gaining an unfair advantage over other
competitors who must go through that process to achieve the same result.

D. INDIAN POSITION NEED FOR CHANGE

With the change of time and nature of business, there is a need for a well defined law to
protect trade secret and confidential information. Trade Related Aspects of Intellectual
Property Agreement provides Protection of Undisclosed Information under Section 7
(Article 39). US have already implemented Uniform Trade Secrets Act to protect their trade
secret and confidential information within US territories or on the internet, outside of the
US. It is denoted as a federal criminal offence in the US, with that US has Espionage Act.
European Union also enacted data protection law to ensure non-disclosure and misuse by
their employees. Now India also needs a structured provision to protect confidential
information. In case of India confidentiality agreement is already exists, but it should not be
broader than its necessity, otherwise it will be fall under the category as void contract. An
employer cant impose a restriction to the employee from utilizing employers skill,
aptitude and general technical knowledge. Even Section 27 of Indian Contract Act, 1872
states any agreement in restraint of trade is void. According to judicial decision any
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employer cant prevent any employee from working with the competitor of previous
employer.
Employer is entitled to put injunction to prevent misuse of confidential information. But if
that misuse has already happened, at that time injunction cant be granted to protect the
employers interest, only in such cases employer is entitled for damages which go against
fair competition. Even no injunction should be granted if an employee obtained the
information independently from the market. Last few decades India witnessed a common
acceptance of the concept of Non- Compete Clause by employers, the origin of the concept
can be tracked back since mid nineteenth century. Following instruments used to use by
the employers to restrict the employees to enter into same type of business or to join any
competitor company with the important information.
Restriction on starting a competing business;
Restriction on working with enterprises operating in the relevant market;
Restriction on working in the relevant geographic market;
Restriction on soliciting the clients of the employer;
Restriction and in majority of cases, a complete prohibition
With these restrictions the clause also used to cover the time period after the cessation of
the employment contract. In India this clause is regulated by the provisions of section 27 of
the Indian Contract Act 1872. But the Indian Courts have the view to treat such clauses as a
concept of equity than a contract. For better understanding, there is a need to consider the
judicial precedent laid down by the Indian Courts.
The Supreme Court of India dealt with such a contractual issue in Superintendence
Company of India (P) Ltd. v. Sh. Krishan Murgai,18 in this case the question is raised that
whether a post-service restrictive covenant would come within the mischief of section 27

18

AIR 1980 SC 1717

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Gargi Chakrabarti

of the Contract Act. The court held that such a contract was prima facie void because it was
based on the object of the restraint of trade. The Delhi High Court in Foods Ltd. and Others
v. Bharat Coca-Cola Holdings Pvt. Ltd. & others19 observed, It is well settled that such post
termination restraint, under Indian Law, is in violation of Section 27 of the Contract Act. Such
contracts are unenforceable, void and against the public policy. What is prohibited by law
cannot be permitted by Court's injunction.
The judgment of the Supreme Court in Percept D'Mark (India) Pvt. Ltd. v. Zaheer Khan and
Anr.20, clarifies the legality of such clauses. The Court observed, Under Section 27 of the
Contract Act (a) a restrictive covenant extending beyond the term of the contract is void and
not enforceable. (b) The doctrine of restraint of trade does not apply during the continuance
of the contract for employment and it applied only when the contract comes to an end. (c) As
held by this Court in Gujarat Bottling v. Coca Cola (supra), this doctrine is not confined only to
contracts of employment, but is also applicable to all other contracts.
VPS Global vs Supreet Roy,21 is another landmark judgment. In this case employee resigns to
join another company and employer suit against employee to get injunction on employees
joining. Here, confidential information was not defined, therefore suit was dismissed. So,
inference is that, there is a need of proper definition of confidential information in India;
otherwise it is unfair to stop employees from joining any other company. Not only that, in
the contract or the memorandum the clauses of confidential information which employee
has to follow should be clearly specified.
In view of the aforesaid observations, it can be interpreted that while dealing with
difference of opinion relating to such non-compete clause under an employment
agreement, the Indian courts have regarded as the pre-termination period of the

19

1999 VAD (Delhi) 93

20

AIR 2006 SC 3426

21

2008 (2) Bom CR 446

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Issue 1

employment separate from the post termination period of the employment. Whilst the
courts have been understanding about the application of the non-compete clause, they have
marched some extra mile to make sure that such clause supposed to have no effect after the
ending of employment and have held that such clause would fall within the mischief of
section 27 of the Indian Contract Act, 1872.
However, the Supreme Court in Niranjan Shankar Golikari v. The Century Spinning and Mfg.
Co. Ltd.22 had given a broad explanation to section 27 of the Contract Act and clarified the
matter further that not all non-compete clause become useful after the termination of the
employment agreement are prima facie prohibited and held. Court held, a negative
covenant that the employee would not engage himself in a trade or business or would not get
himself employed by any other master for whom he would perform similar or substantially
similar duties is not therefore a restraint of trade unless the contract as aforesaid is
unconscionable or excessively harsh or unreasonable or one-sided. Therefore, in order to
meet the criteria for being enforceable by law, it is important to guarantee that restriction
imposed by the employer is logical and not harsh on the employees. It may not be out of
place to specify that the restrictions to the extent of non-solicitation and/or nondisclosure may be viewed as an exception to this rule. Though the non-solicitation clause
may be prima facie viewed as negative in nature, they are valid and enforceable by law. The
Delhi High Court in Wipro Limited v. Beckman Coulter International S.A.23 held that a nonsolicitation clause does not amount to a restraint of trade, business or profession and
would not be hit by Section 27 of the Indian Contract Act, 1872 as being void. Similarly, in
Mr. Diljeet Titus, Advocate v. Mr. Alfred A. Adebare and Ors.24, the Delhi High Court clarified
that confidential information of the employer can be protected even in the post
employment period. Protection of valuable information and trade secrets requires multi-

22

AIR 1967 SC 1098

23

131 (2006) DLT 681

24

130 (2006) DLT 330

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Gargi Chakrabarti

disciplinary solutions, because it is including intellectual property, labour and employment,

privacy and data security and commercial litigation. Moreover, different types of wrong
doing is involved with it; like theft, bribery, espionage, misrepresentation, breach of
contract, inducement to breach a duty, network attacks etc. In India, statutory provisions,
apart from contract, are specific relief, damages, arbitration and conciliation for dispute
settlement, search and seize order, precautionary impoundment.
Garden Leave is the clause where employee used to give a long term notice to the
employer before his resignation, the employer at that time pays full remuneration to
restrain that employee from competition. Especially United Kingdom use this concept for
employer as a substitution to the non-compete clause. In India this clause is not a common
tool for employers. Recently, the Bombay High Court in VPS Global Services Private Limited
v. Mr. Suprit Roy25 laid down that to obstruct an employee who has left service from
obtaining gainful employment elsewhere is not fair or proper. Further the court also pointed
out that the clause is prima facie in restraint of trade and is hit by section 27 of the Contract
Act. Privacy issues relating to computer system are under the purview of Information
Technology Act, 2000. This Act contain certain provisions for stored data, nowadays data
protection is a problematic issue for the business houses, financial institutions and the
governmental bodies so as to give adequate protection to their huge databases. These days
companies are relying on the contract law as a useful means to protect their information.
The corporate houses enters into several agreements with other companies, clients,
agencies or partners to keep their information secured to the extent they want to secure it.
Agreements such as non circumvention and non-disclosure agreements, user license
agreements, referral partner agreements etc. are entered into by them which contains
confidentiality and privacy clauses and also arbitration clauses for the purpose of resolving
the dispute if arises. Employees are under seizing, as employers routinely use software to
access employees e-mail and their movements.

25

2008 (2) Bom. C.R. 446

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Issue 1

E. CONCLUSION
The courts, in attempting to reconcile the conflicting interests of employers and employees,
have produced a balance that is ill-conceived and inequitable. The criticism is centered on
the appropriate method of protecting confidentiality. In the view of unavailability of Indian
Law specifically related to Confidential Information, it can be recommended that, though
Law of Contract can very much handle confidential information easily, still some special
provisions regarding protection of confidential information will be good and appreciable.
Regarding the context of new technologies and up-coming industries, like software
industry and pharmaceutical industry, protection of confidential information is of immense
importance. Basic programming language in software application and web-developing or
drug manufacturing method and principle in pharmaceutical industry, are not protected by
intellectual property law. But when a group of people are working in a research and
development unit of a specific company, they are engaged in development of a process or a
method as a team. If any one person leaves that team, he has that development process in
his memory; he may use that information unintentionally as his skill and knowledge even
for a competitor company. It is not mentioned in the case law how far this thing is
justifiable, is a moot question. Businesses are going global and confidential information
protection is becoming an important issue for whole world. Though there is no enactment
in India in terms of confidential information some of the tools previously this article
discussed to safeguard the confidential information. The adequate and effective protection
of confidential information would be necessary for success of business ventures in the long
term for any business to exist in this increasingly competitive world.

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