The European Commission has published proposals to reform trade secrets law across Europe, in an effort to make it easier for national courts to deal with employees and former employees unlawfully taking, using and profiting from confidential business information.

The reforms are set out in a new EU Directive.  

More detail on the content of the Directive is available on the Squire Sanders Global Business IP and Technology Blog  By enabling innovative businesses to defend their trade secrets more consistently and effectively across the EU, the Commission hopes to spark more cross-border innovation activity and thereby create investment and economic growth.    It is hoped that this will in turn boost innovation-jobs and increase mobility of highly skilled labour (being those people who are most likely to have access to trade secrets).

The Directive must be approved by the European Parliament and Council before it can come into force.   It will then need to be implemented by each Member State.   So we are perhaps a year or two away from this being law.   When in place, the Directive and implementing legislation should prove a useful tool for employers, particularly in jurisdictions where trade secrets are not currently generally or effectively protected.

“Trade Secret” will be defined as information which (in summary) is not generally known or publically available, has commercial value because of its secret nature and has been the subject of reasonable efforts by the employer to keep it under wraps.

Employers should bear in mind that confidential information which falls short of the definition of “trade secret” under the new legislation will remain protectable through the use of carefully drafted provisions in the employment contract.  However, whilst the new law should mean that employers can take action in relation to misappropriated trade secrets wherever in the EU the unlawful conduct occurs, relying only on contractual provisions in a cross-border context will mean that employers will continue to face challenges in protecting lesser forms of confidential information.  When entering into an employment relationship which is likely to span multiple jurisdictions, employers should therefore plan their strategies for dealing with this from the very outset.

Careful thought should be given to the question of which law will govern the contract, for example.  Where dealing with highly remunerated employees with complex benefits structures, employers should maximize the use of deferred remuneration and claw-back provisions to provide a disincentive for departing employees who may be tempted to provide confidential and business-critical information to new employers.   A lawful entitlement to forfeit a payment otherwise due under a long term incentive plan will always provide a useful fallback where misappropriation of business-critical information is otherwise not actionable under the terms of the contract.

Even where breaches of the new trade secret law occur in the UK alone, employers may benefit from the changes the Directive will bring, such as new procedures designed to ensure that the confidentiality of trade secrets is protected during the litigation.

It remains the case, however, that it will sometimes be immaterial whether misappropriated information amounts to a “trade secret”.   The provision of information by a current employee to a rival employer, where the employee knows that the information could be used to assist the rival and harm his employer will still amount to a breach of his duty to act in his employer’s best interests and/or any fiduciary duties owed to his employer.