With the advent of fierce competition, it is imperative for organisations to maintain their competitive edge. Therefore the organisations enter into confidentiality and non-disclosure agreements with their employees. The issue of protection of confidential information is yet to be addressed through legislation in India and it becomes necessary to rely on the judicial interpretations dealing with such issues. This article seeks to analyse the confidentiality covenants and their enforceability under Indian law.
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Confidential information and legal framework
As understood from various judicial decisions, confidential information is any material, knowledge, information, data available exclusively to a particular business but not to the public domain which if misused or disclosed could adversely affect the company’s business. Trade secrets such as methods of construction, processes of manufacture, customer data bases are protected by law. Disclosure of such information to a government representative, attorney or a court official to assist in a case shall not be considered a breach of confidentiality as long as the employee provides the employer with a notice of such a request. Information that is in the general knowledge of the public is not classified as confidential[1].
There is a pressing need for protection of confidential information for corporates. While some countries have enacted statutes, India still lacks a legislative framework dealing with protection of confidentiality. In the absence of a clear legislation offering protection to confidential information, it is crucial for the employers to ensure that the contractual obligation imposed on the employees is enforceable. Hence, while drafting the confidentiality clause, caution needs to be exercised and employers are advised to do so in accordance with the qualifications laid down by the courts such as, the information should be of such commercial value and utility which if disclosed would be detrimental to interests of the company;[2] such clauses should not amount to restraint of trade;[3] and information must be unknown to others.[4]
In the context of confidentiality clauses in employment contracts, it is pertinent to consider section 27 of Indian Contract Act 1872[5]. However, Supreme Court has observed that it is implicit in a contract of employment that an employee may not disclose the confidential information of his former employer.[6] Similarly, Delhi High Court has also expressed that the confidential information of the employer is to be secured post-employment.[7] The employers are thus ensured legal protection of their confidential information and employees are mandated to take all reasonable steps to ensure that they do not disseminate such information to any person or business unrelated to the company during/post-employment. Hence, such confidentiality clauses are usually valid and enforceable under law.
In case of breach of contract, the employer can seek redressal through injunction by preventing the third party from disclosing confidential information or return of the same and compensation or damages for loss actually caused due to breach of contract. However, for availing these reliefs, the evidence of breach of contract as well as the damage caused is on the employer, which sometimes becomes a challenging task given the nature of confidential information.
In addition to relying on judicial precedents and remedies discussed above, employers can also avail of provisions of Indian Penal Code such as Section 381 (theft by clerk or servants), Section 403 (dishonest misappropriation of property) and Section 405 (criminal breach of trust). Provisions of Information Technology Act 2000 such as Section 43A (compensation for failure to protect sensitive personal data or information especially at corporate level) and Copyright Act 1957 which affords protection to the data base of employers are also available as recourse to the organisations.[8]
Conclusion
The legal framework governing confidentiality and non-disclosure is still in its nascent stage in India. Hence, enforcement of confidentiality clauses differs depending upon the relevant employment agreement, equitable claims recognised by courts in the absence of a specific contract, law governing such an agreement and judicial precedents for grant of injunctions and damages. A care needs to be taken while drafting the confidentiality agreements keeping in mind the principles discussed above.
The article is authored by Mr. Anshul Prakash and Mr. Parag Bhide, Principal Associate, Khaitan & Co