Putting non-disclosure of confidential information and trade secrets clause in the employment contract intends to restrict the employees from disseminating confidential and other relevant information.
However, this, along with other restrictive covenants such as non-compete and non-solicitation, is among the most contentious issues in India because such provisions seem to conflict with Section 27 of Contract Act.
With this clause,
- The employee is mandated to take reasonable steps to keep all the confidential information in confidence unless any law mandates disclosure.
- The employee is required to no discuss the confidential information to any third party unrelated to the company.
Here are some examples of court cases in India for disputes about non-disclosure clauses:
Diljeet Titus v. Mr. Alfred A. Adebare and Others at the Delhi High Court
The law firm filed a lawsuit against one of the lawyers, whose employment was terminated, accusing him of taking away important confidential business information including client lists and proprietary drafts of contracts.
The lawyer claimed that he was the copyright owner of that business information as he prepared those during his employment.
The Delhi High Court rejected the lawyer’s claim and ruled that the law firm have a clear right over that business information. Further, the Delhi High Court restrained the lawyer from using that information.
To be clear, the Delhi High Court didn’t prohibit the lawyer from carrying on a similar service, utilizing his skills and information that he may have mentally retained. The lawyer was only forbidden from using the copied material of the Law Firm over which just the Law Firm has a right.
American Express Bank Limited v. Priya Puri at the Delhi High Court
The Bank filed a case against an employee who was heading Wealth Management and who was serving her notice for termination of employment on the ground that she disclosed confidential information to persons unrelated to the Bank.
The bank claimed that the employee was breaching the confidentiality by sharing confidential information, trade secrets and customer list. The bank requested to restrain the employee from using or disclosing the information and data.
The employee contended that she built a relationship with all her clients, over which the Bank doesn’t have any proprietary rights. The name, phone, and address of these clients are readily available and can’t be treated as confidential information.
The Delhi High Court rejected the claim of the Bank on the ground that inconvenience caused to the employee for her prospects shall be much more if the Bank’s request is accepted. Further, it said that the customers of the Bank would not get convinced to shift their business to a competitors bank just because the employee has their data.
Above two cases show that, in general,
- A former employee may not be prohibited from carrying on a similar service or using his skills and information that he may have mentally retained.
- A former employee may be restrained from using confidential information, provided the employer can prove that the information indeed is confidential. In such a case, the employer can seek an injunction or claim damages.