When a consultant or employee can use ‘your’ information for another client

By: Fanny Marshall

Date: 29 June 2009

Employers whose consultants or contractors learn how to do something while working for them will welcome a recent court decision giving guidance on when the consultant or contractor can use that information when doing work for a rival business, and when they can’t.

A consultant helped a company develop a new product – a mosquito net impregnated with insecticide to kill the mosquitos. In the course of that work, the company created a database, which included information about the formulae for different pesticides, and test results. The consultant resigned, but then helped a rival business (set up by two ex-employees) develop a similar product. The first company claimed he had used confidential information and trade secrets contained in the database. There had been no written consultancy agreement with the first company, containing confidentiality clauses, so the first company claimed he owed it an implied duty to keep its confidential information secret, which he had breached.

Ordinarily, the implied duty applies only to employees. A consultant (or any other non-employee) is under no implied duty of confidentiality; there has to be an express agreement. The consultant also argued that he was just using skills and experience gained in his work as a consultant. The law protecting confidential information does not go so far as to stop someone from using their skills and experience, even if they gained some or all of it working for you, in some future employment or business enterprise. However, the court said that where a business can show that the consultant’s role is analogous to that of an employee, the implied duty of confidentiality could apply. In this case, the consultant was brought in specifically to develop the new product, and paid to do so. He was supervised like a senior employee, worked hand-in-hand with employees on aspects of the development, knew that most of the information in the database came from work and tests paid for by the company, and knew (from steps taken to make sure other outsiders kept the information confidential) that it was confidential.

Importantly, he appreciated the commercial importance to the business of the launch of the new product, so that it was likely he realised that information associated with it was confidential. The court also said that the information in the database, including formulae and conclusions drawn from tests, could be trade secrets, and could be distinguished from the general knowledge, skill and experience of a consultant in this area. While the first company won, the case makes clear the importance of a written agreement containing confidentiality clauses when any outsider will, or might, have access to your business’s confidential information or trade secrets.

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