When Confidential Information Cannot Be Protected Post-Termination of Employment in Hong Kong

Not all "confidential information" can be protected post-termination of employment, as illustrated by the case of Conpak Management Consultants Limited v. Luk Wai Ting.

The plaintiff company (Company) sued its former employee (Respondent) in the District Court for breach of contract of employment, confidence, fiduciary duties and the duty of fidelity – all connected with the Respondent's alleged use and disclosure of the Company's "confidential information".

However, the court dismissed the claim as the "confidential information" did not possess the necessary quality of confidence capable of protection post-termination of employment.

Facts

The Respondent joined the Company as a Tax Manager in August 2016. It transpired that while employed with the Company, he also owned and controlled a sole proprietorship business (WILTAX). 

However, the Respondent did not declare this interest to the Company, even though he was subject to an express contractual obligation to (among other things) declare his interest in any business.

In September 2017, the Respondent sent an email to his personal email via his Company email attaching an engagement letter which provided that WILTAX (i.e. his business) would be engaged by an existing client of the Company (Client T) to provide tax advice (Relevant Email). The Company also claimed that the Respondent forwarded 223 emails from his Company email to his personal email over the course of his employment.

The Respondent later resigned and in April 2020, in his capacity as a director of his new employer, he contacted another client of the Company (Client A) offering discounted services.

Subsequently, the Company commenced proceedings against the Respondent claiming that he had (i) disclosed the Company's "confidential information" (namely Client A’s contact details and the 223 emails) to others without the Company's consent; and (ii) acted in conflict of interest with the interests of the Company by wrongfully and unlawfully transferring business from Client T to himself and/or WILTAX and receiving these customers on his behalf (Conflict Issue).

The Company sought an injunction and damages or an account for profit. The Respondent denied the claim.

Decision

The main issue to be determined was whether the information in question amounted to confidential information which was capable of protection. The judge recapped the following key legal principles:-

1. An employee, while employed, is subject to an implied duty of fidelity which requires him not to divulge or use, except for his employer's benefit, any confidential information appertaining to the employer's business.
2. Not all information labelled as "confidential information" is confidential information protected by the law post-termination of employment. Protection of confidential information post-termination of employment is confined to restraining misuse or disclosure only of trade secrets and confidential information of an equivalent status. Confidential information of lesser significance is not subject to such protection.
3. Where an employer seeks to restrain an employee against misuse or disclosure of his trade secrets, the employer has the burden of identifying with precision what trade secrets (or confidential information of equivalent status) he seeks to protect.
4. In order to satisfy the court that the information is confidential information of an equivalent status as trade secrets, the employer has the burden to establish the following elements:-
   1. The information must be used in a trade or business.
   2. The information is confidential (i.e., not already in the public domain).
   3. The information can be easily isolated from other information which the employee is free to use,
   4. Disclosure of the information would be liable to cause real or significant harm to the owner.
   5. The owner of the information must limit its dissemination or at least not encourage or permit its widespread publication or otherwise impress upon the employee the confidentiality of the information

The learned judge was not satisfied that the claimed confidential information, namely Client A's contact details and the 223 emails, were confidential because:

1. The Company failed to demonstrate that Client A's contact details were not publicly available; and
2. The identities of the clients in the 223 emails were not made known in the present case; and insofar as it was claimed that the contents of the emails were confidential, the Company did not plead this or adduce them in the evidence.

The court ultimately held that there was no breach of confidentiality and so did not grant any injunctive relief.

As for the Conflict Issue, the court agreed that there was a conflict of interest when the Respondent drafted the Relevant Email in the name of WILTAX using his Company email account. However, there was no evidence that the Relevant Email was subsequently sent to Client T. In fact, Client T had not engaged WILTAX at all.

As such, the court found that such conflict of interest had stopped at the drafting of the Relevant Email and went no further.

The remedy of an account of profits is available only where there existed a fiduciary relationship between the parties. Given that the Respondent was the only tax advisor at the Company and was responsible for handling all tax-related matters, the court held that he did owe fiduciary duties to the Company but only in the limited respect of the tax part of the Company's business.

However, the court dismissed the Company's claim for the account of profits on the basis that (among other things) the Respondent did not gain any profit from Client T – since WILTAX was not engaged by Client T.

Key Takeaways

Not all information (even if labelled as "confidential information") of an employer is capable of being protected after the termination of employment.

In order to better protect its confidential information, an employer should:-

1. Treat any confidential information as such by taking appropriate practical steps to secure the information, for example, with encryption and passwords, limiting access, and identifying documents as confidential;
2. Take legal means to protect confidential information, such as having appropriate contractual obligations with the employee as to confidentiality and post-termination restrictive covenants, and taking steps to enforce those obligations when required;
3. Identify precisely what confidential information they wish to protect and not intermingle it with non-confidential information;

The judgment is available here.