Enforcement of Confidentiality Clauses in Scottish Employment Law: Key Takeaways from Pursuit Marketing Ltd v Thomson [2023]

1. Introduction

The case of Pursuit Marketing Ltd and Another against Kyle Thomson and Others ([2023] ScotCS CSOH_22) was adjudicated by the Outer House of the Scottish Court of Session on March 21, 2023. This litigation involved two information technology subsidiaries (the pursuers) bringing action against three defendants—Kyle Thomson, Laura Lochhead, and Michelle Hodge—alleging breaches of confidentiality and restrictive covenants post-employment.

The core issues centered around former employees allegedly accessing, copying, and potentially misusing confidential information after transitioning to competitor firms. The enforcement of restrictive covenants and confidentiality clauses within employment contracts formed the crux of the legal dispute.

2. Summary of the Judgment

Lord Clark delivered the judgment, examining the enforceability of specific contractual clauses pertaining to confidentiality and restrictive covenants. While the court acknowledged the validity of certain claims against the first and second defendants regarding the alleged copying of confidential information, it dismissed the case against the third defendant due to insufficient evidence.

The judgment emphasized the necessity for clear identification of confidential information and substantiated apprehension of misuse or disclosure. Consequently, the orders sought against the first and second defendants remained viable pending further proof, whereas the claims against the third defendant were dismissed.

3. Analysis

3.1 Precedents Cited

The judgment extensively referenced established case law to elucidate the parameters governing confidentiality obligations:

Coco v A N Clark (Engineers) Ltd (1969): This seminal case established that for information to be protected as confidential, it must possess the "necessary quality of confidence," akin to trade secrets.
Faccenda Chicken Ltd v Fowler (1987): Reinforced that the duty of confidentiality persists post-employment and applies to information that is not public, emphasizing that even non-traditional "trade secrets" can be protected.
Lux Traffic Controls v Healey (1994): Highlighted the necessity of considering all circumstances in determining whether information is confidential, rejecting broad or vague assertions of confidentiality.

Lord Clark applied these precedents to underscore that confidentiality clauses must clearly define what constitutes confidential information and that mere assertions without specificity are insufficient for enforcement.

3.2 Legal Reasoning

The court's legal reasoning centered on the enforceability of the confidentiality and restrictive covenant clauses within the employment contracts.

Definition of Confidential Information: The judgment reiterated that clauses defining confidential information do not expand the legal definition. Information must inherently possess confidentiality based on its nature and the context in which it was shared.
Obligation of Confidence: It was emphasized that the obligation to maintain confidentiality applies if the information was imparted in circumstances indicating its confidential nature and limited purpose.
Specificity in Clauses: The necessity for precise identification of confidential information within contractual clauses was stressed to avoid overbreadth and ensure enforceability.
Apprehension of Misuse: For interdicts to be granted, there must be a real apprehension of misuse or disclosure, supported by clear averments or evidence.

Applying these principles, the court found that the pursuers had sufficiently outlined specific types of confidential information against the first and second defendants but lacked such specificity regarding the third defendant.

3.3 Impact

This judgment has significant implications for future cases involving confidentiality agreements and restrictive covenants within Scottish employment law:

Enhanced Clarity in Contracts: Employers must ensure that confidentiality clauses and restrictive covenants are clearly defined, specifying the exact nature of the information protected.
Evidence Standards: Courts will require more concrete evidence or lucid averments demonstrating the copying or misuse of confidential information to enforce such clauses.
Scope of Interdicts: Interim interdicts will likely need to be more narrowly tailored, focusing on specifically identified confidential information rather than broad or vague categories.
Protection of Trade Secrets: The judgment reinforces the protection of trade secrets and commercially sensitive information, aligning Scottish law with established principles in broader UK jurisprudence.

Overall, the judgment underscores the balance courts seek between protecting legitimate business interests and preventing unfair restrictions on trade and employment mobility.

4. Complex Concepts Simplified

4.1 Interim Interdicts

An interim interdict is a temporary court order intended to prevent a party from taking certain actions until the final resolution of the case. In employment disputes, it's often sought to prevent the misuse of sensitive information immediately after an employee's termination.

4.2 Restrictive Covenants

Restrictive covenants are contractual clauses that restrict an employee's actions during and after their employment. Common types include non-compete clauses, non-solicitation clauses, and confidentiality agreements, aiming to protect the employer's business interests.

4.3 Mandatory Elements for Confidentiality

For information to be legally recognized as confidential, two main criteria must be met:

The information must have inherent confidentiality (e.g., trade secrets).
The information must be shared under circumstances that imply a duty of confidentiality.

Both elements must be satisfied for contractual clauses protecting such information to be enforceable.

5. Conclusion

The Pursuit Marketing Ltd v Thomson judgment serves as a pivotal reference point in Scottish employment law concerning the enforceability of confidentiality clauses and restrictive covenants. By emphasizing the necessity for clear identification and evidence of confidential information, the court reinforces the standards required for such clauses to be upheld.

Employers are now prompted to meticulously draft their contractual provisions, ensuring specificity and clarity to withstand judicial scrutiny. Conversely, employees gain a clearer understanding of the boundaries and expectations surrounding the handling of confidential information post-employment.

Ultimately, this judgment balances the protection of legitimate business interests with the prevention of overreaching restrictions on individual employment freedoms, fostering a fair and equitable legal framework within the employment sector.