To search or not-to-search, that is the question?
Quite often I find myself advising local businesses on how to best safeguard their confidential information from departing employees. My answer is simple – be sure to incorporate well-drafted restraint of trade provisions in the employment agreement. Information which is commercially sensitive to a business can potentially harm that business if it gets released into the wrong hands (particularly those of a competitor). Therefore, it is imperative that an employee is contractually obligated to return any company-owned information to the employer before he departs. A breach of a well-drafted restraint of trade provision entitles the employer to issue a claim for breach of contract.
But, what happens if the departing employee still can’t be trusted to comply?
What urgent action can an employer take to make sure that confidential information does not fall into the wrong hands even if it has assurances from the departing employee?
Well, the Employment Court in the recent decision of Hynds Pipe Systems Limited v Forsyth has just provided some well-needed advice. A “search order” should be the first port of call!
In Hynds, the employer had genuine concerns that Mr F was not intending to comply with his contractual restraint of trade provisions. On the basis that he had worked in a senior role (Business Development Manager) for a long-time and been exposed to highly sensitive information concerning its business affairs (such as pricing and commission structures), the employer was not prepared to take any chances when it realised that Mr F was off to work for a major competitor. Instead of waiting-to-see, the employer began internal surveillance of Mr F’s activities which confirmed that he had indeed copied multiple files, forwarded many emails and documents to his personal ‘Gmail’ account, and deleted a large number of important commercial documents from his work computer.
Hynds immediately filed a successful application with the Employment Court for a search order authorising it to search and inspect Mr F’s devices (personal and work). Mr F was not made aware of the application and was not privy to any legal proceedings. He was taken completely off guard when agents of the company attended his home (24 hours later) to execute the search orders by seizing his devices. Not surprisingly, Mr F refused to hand-over the devices and threatened legal action for the invasion of his privacy. The agents then left his home empty-handed.
Not to be perturbed, Hynds revisited the Employment Court to seek another order, this time for ‘contempt of Court’ based on Mr F’s refusal to hand-over the devices and comply with the original search order. Hynds argued that Mr F’s flagrant disregard of the order must not go unpunished and that a criminal sanction should be imposed. In response, Mr F questioned the legal-standing of the Employment Court by arguing that i) search orders could not be granted in an employment context, only in commercial High Court proceedings; and ii), it had no legal authority or power to award a criminal punishment (it was not a criminal Court).
Not so! Whilst the scope of the Employment Court’s power to grant a search order and enforce punishment for contempt has been unsettled in law for some time, the position has this week been confirmed. An employer is perfectly entitled to apply to the Court seeking an order without notice (to the departing employee) that it wishes to search and inspect personal devices where it has genuine concerns that harm may result to its business if commercially sensitive information is at risk of being misused. The Employment Court has both a statutory and inherent legal power to make a search order (this power is not just reserved for commercial / High Court matters). Further, if the individual named in the order (in this case, Mr F) fails to comply, then the employer has every right to go back to that Court and seek an order for contempt which may see that individual fined and/or imprisoned for a term not exceeding 3 months. Failing to comply with an Employment Court order is a clear example of contempt which undermines the integrity of the judicial system and must be punished. It is a criminal offence worthy of criminal sanction.
So, what should a worried employer do in circumstances similar to those in Hynds – search, or not-to-search? Definitely search!
Apply to the Employment Court and seek an urgent without notice search order seeking access to any files / devices which you believe may contain information which is deemed commercially sensitive to your business, which if placed in the wrong hands could risk harm to your business. Should your departing employee fail to comply, then the threat of criminal sanction such as a spell in prison or a rather hefty fine, might be just enough to tempt them to think again!