A real risk for food manufacturers is that know-how may be taken by ex-employees to competitive businesses.
One example is the court battle fought over ex-employees of Goldenfry Foods using trade secrets to establish their own business and subsequently win a £5M supermarket contract. Goldenfry Foods argued that their former employees could not have won the contract without using confidential information, which they took with them when they set up the rival business.
Employment contracts within food businesses will normally include restrictions on the use employees can make of confidential material. If these are breached, you may need to take action.
First, establish the facts. Are there any legitimate concerns the employee has acted contrary to express or implied terms of their employment contract?
Often, early forensic IT analysis of PCs, laptops and mobiles is the key to confirming suspicions. For example, an employee may use their work computer to send confidential material to their private email address for use in a new job. Portable devices, such as memory sticks, might be used to download and copy material.
Where concern arises, personnel files should be checked as soon as notice is given. Ensure they are up-to-date and check post employment obligations and restrictive covenants. Early advice should be sought as to enforceability or otherwise of such provisions.
A five point action plan could offer useful defence:
• First, remind the employees of their obligations under their contracts and seek undertakings that they will abide by these provisions
• Second, if evidence is found of serious wrongdoing, consider whether urgent court action is needed to protect your business interests. If there a risk that material could be destroyed, a ‘without notice’ application to preserve evidence may be needed, or seek an interim injunction. Such steps should not be lightly taken; evidence in support of an application has to be carefully collated and presented and full and frank disclosure must be given to the court. The costs need to be considered in the context of the overall value of the claim and in relation to achieving objectives.
• Third, if confidential material is being used to damage your business, you need this returned immediately. There may be a specific provision in the employment contract to cover this.
• Fourth, you must decide whether to seek an account of profits from the competitor business for profits enjoyed through unlawful use of your material, or damages for the losses incurred. For example, a supermarket customer of yours may, after an approach by your competitor with use of your material, seek a price reduction from you. A causal link must be proved between the taking of the confidential information and the impact upon the business.
• Fifth, if a whole team leaves en masse and it is deemed there is unlawful conspiracy between the employees and the competitor, it may be possible to claim exemplary damages. These are recoverable where the profit they gain is likely to exceed compensation payable to the claimant.
As good practice, ensure that contracts are kept up-to-date, particularly when promotion gives access to confidential and sensitive information.
Take early action; gather information, seek advice on options and consider alternatives such as mediation to try and resolve matters before costs mount.
Where the evidence is compelling, other parties are more likely to want to engage in resolving matters speedily. If you are successful at court, costs incurred will be substantially recoverable from the losing party.
- Mukesh Patel is a partner at Freeth Cartwright LLP , a national legal practice with particular expertise in the food sector. He specialises in commercial disputes.