Protecting against disclosure of trade secrets by former employees
Once the Unfair Competition Act is amended, will a nondisclosure obligation have to be provided for explicitly in an employment contract when an employee leaves?
The deadline for implementation of the Trade Secrets Directive (2016/943) is 9 June 2018. The directive sets a minimum standard for protection of trade secrets as a tool for management of competitiveness and innovation.
To this end, work is in progress on a bill to amend the Unfair Competition Act and certain other acts. The bill has been submitted to the Sejm, and the Legislative Office and Sejm Analysis Office are drafting opinions.
The proposal would amend the current Art. 11 of the Unfair Competition Act of 16 April 1993, mainly regarding the definition of a trade secret and criteria for classifying an action as an act of unfair competition in the form of violation of a trade secret. It would also delete the current Art. 11(2) of the act, which says that an act of unfair competition in the form of breach of a trade secret can also be committed by someone who performs work under an employment relationship or other legal relationship for three years following the end of the relationship unless the agreement states otherwise or confidential status no longer applies.
This provision is to be deleted in order to strengthen protection of trade secrets. The statement of reasons for the bill says that this protection is limited because the provision limits the duration of protection applicable to an employee to three years from the end of the employment relationship.
The proposed amendment may result in less protection and the effect opposite to that intended because deletion of this provision may give rise to reasonable doubts with regard to interpretation. The question arises again of whether Art. 11 of the act applies to employees, and where legal grounds can be found for a nondisclosure obligation for former employees when employment comes to an end.
This provision contains clear grounds for application of Art. 11 of the act to employees. Some commentators argue that in principle the Unfair Competition Act applies to businesses, and to other categories of entities only where expressly stated in the act. At the same time, in the case of Art. 11 of the act, one of the arguments for its applicability to employees is the explicit wording of Art. 11(2). The same view is expressed on the basis of a general clause in Art. 3 of the act, stating that action which is a breach of law and good and moral practice is an act of unfair competition if it breaches or endangers the interest of another business or a customer. In the literal sense, to breach the interests of “another” business in the meaning of the Unfair Competition Act, one has to be a business oneself. The legal literature on the range of entities to which the act applies is inconsistent, as the view is also expressed that the broad wording of Art. 11(1) means that it applies to anyone who commits an act of unfair competition regardless of whether they are a business. As a result, this provision should also apply to an employee or former employee. An employee or former employee in fact has the greatest access to information and in reality poses the greatest threat to confidentiality. This is probably an area where interpretation will be developed once the changes come into effect.
Grounds for nondisclosure obligation for former employees
There is also a view in the legal literature that Art. 11(2) of the act requires former employees to observe confidentiality, somehow extending the duration of this obligation for three years following the end of the employment relationship. Clearly, an employee is required to observe confidentiality while employed, under Art. 100(2)(4) of the Labour Code. This requires an employee to keep confidential, in particular, information that could harm the employer if disclosed. Under labour law, however, there is no provision stating expressly that an employee has a nondisclosure obligation once employment ends. Some authors find such a legal obligation in the wording of Art. 11(2) of the Unfair Competition Act. The proposed deletion of this provision raises the question of the legal grounds for a nondisclosure obligation for former employees.
This is an important question, because under the proposal the use or disclosure of a trade secret is an act of unfair competition when the holder does not consent and it is also a breach of an obligation (restriction of disclosure or use) under the act, a legal transaction, or other act. Where there is no law explicitly requiring a former employee to observe confidentiality, the key issue is whether there is an agreement under which the employee has a post-employment confidentiality obligation or there are other legal grounds for this obligation.
Agreements need to be amended?
To summarise, the proposal to delete the provision in question might undermine protection of an employer’s confidential information, contrary to the intended effect. It would be a stretch, and contrary to the aims of the directive, to conclude that due to deletion of par. 2, Art. 11 of the act would no longer apply to employees or former employees, but there is cause for reasonable doubt in this regard. For a specific action to be regarded as an act of unfair competition, and to successfully pursue claims under the proposed new version of the Unfair Competition Act, it might prove necessary (at least as a precaution) to include a provision in employment contracts expressly imposing a post-employment nondisclosure obligation.
Agnieszka Lisiecka, adwokat, Employment practice, Wardyński & Partners