Can I just Spill the Beans on my Employer’s Trade Secrets? (Part 1)
by Carmel Grace Philip ~ 23 October 2024
If you are an employee or former employee of a particular Company and are thinking of utilising your employer’s information to start your own business or company and make some big bucks, this article is for you.
At the outset, if you are planning on doing the above, you would need to take cognizance of the fact that the law in Malaysia protects an employer’s trade secrets (also referred to as confidential information) from being disclosed or stolen for the purpose of reaping benefit at their expense.
So, you would need to tread those waters carefully and we highly encourage you to read this article before executing your grand plan.
Do you have an obligation to keep your employer’s trade information a secret?
This is the part where you need to inspect your employment agreement and keep an eye out for a clause on confidentiality. The confidentiality clause would read something along these lines:
“As an employee of the Company, you shall at all times ensure confidentiality of the Company proprietary and other confidential information whether such information is directly or indirectly within your knowledge. Such information which shall continue to remain as the property of the Company and shall not be divulged to any third party without the expressed authority of the management.”
If a similar clause is present in your employment agreement, then you would be bound to the said clause and not be allowed to divulge your employer’s trade secrets nor utilize it for your own personal benefit.
Even if such precise and express terms are not present in your employment contract, you would still owe your employer an implied duty of good faith or fidelity to not disclose his trade secrets.1
Why is this confidentiality clause important for your Employer?
The clause on confidentiality is important because your employer would have expended time, energy and, most importantly, money to formulate their trade secrets to build their business. Therefore, it would not be fair on them for someone else to utilize their own trade secrets and make a profit from it.
Now, let’s get back to you.
The law that governs the breach of the duty of confidentiality
There is no specific Act of Parliament that governs the breach of duty of confidentiality. Rather, it falls under the realm of intellectual property law whereby Courts rely on common law and contractual obligations in ascertaining whether one has illegally infringed their duty of confidentiality.
What makes a piece of information a trade secret?
A trade secret is synonymous with confidential information and would constitute certain classes of information that are not accessible in the public domain by the general public.
Some examples of confidential information or trade secrets would be your employer’s recipes, formulas, records of sales, prices negotiated, product design details, manufacturing techniques, lists of suppliers, customers and their personal information just to name a few.2
How do I know if I have breached or would be breaching a duty of confidentiality?
Our Malaysian courts, and quite recently in CL Cosmetic Industries Sdn Bhd v Syed Subri bin Syed Agil & Anor [2024] MLJU 1993 (High Court), have widely adopted the three elements that would need to be fulfilled for an act to constitute a breach of confidentiality, as set out originally by the English High Court of Justice in Coco v AN Clark (Engineers) Ltd [1969] RPC 41.
The three elements are as follows:
- The information must have been confidential in nature
The information must not be in the public domain whereby it is not of trivial character or easily accessible from public resources. If a piece of information is a common business know-how, that too will not be considered confidential because of its widespread practice and knowledge among individuals within the same industry. - You owe an obligation of confidence to the company
This obligation could either be a contractual obligation whereby your employment agreement contains a clause on confidentiality or in the absence of said clause, an obligation in the form of an implied duty of good faith and fidelity, the scope of which depends on the nature of the employment contract.3 - There must have been an unauthorized use of the confidential information to the detriment of your employer
Unauthorized use of confidential information would manifest in the communication, transmission and disclosure of the information to third parties or the use of said information for personal benefit outside of the scope of employment. Since trade secrets possess commercial value, the unauthorised dissemination of it would naturally bring about a detriment to your employer since they would not be reaping the benefits from the use of their own trade secret.
Conclusion
So, if your circumstances fall within the scope of a breach of a duty of confidentiality, please do not proceed to utilize your employer’s trade secrets for your own benefit because if you do, you run the risk of being sued for damages or have an injunction granted against you, among other possible legal implications.
Further, if your employer is able to establish the elements above and prove that you have breached your duty of confidentiality, you will be faced with the burden of adducing evidence to establish that you were, in fact, utilising your own trade secret, as opposed to that of your employer. This would, no doubt, be an uphill battle.
If you are wondering if these obligations extend to you even after your employment has ended, keep your eyes peeled for Part 2!