Employee competition – not everyone wants to play fair

Article Index

As pointed out in Bill Walker's blog, Cyber crime – are your employees your biggest risk?, it’s well established that company insiders are one of the biggest risks to confidential or sensitive company information. Yet, as reported by the Federation Against Software Theft, 53% of bosses felt that not enough was being done in their organisations to protect the company’s data – even though 49% of the same sample thought that they would lose their jobs if a security breach occurred.

Who are the insiders?

Insiders who pose a threat to the business tend to come in two main varieties. There are those who don’t actually intend to do any damage, but end up causing problems or data breaches through a lack of training or guidance, or just plain old sloppiness and lack of attention. But there are also those who actually set out to steal company information. These are a more determined and generally more able group. Amongst these types there are those who:

  • are unhappy with the company for some reason, such as the credit controller who caused £32,000 of damage and untold system failures by spraying Cillit Bang into the servers over a three-year period
  • see the work they do as their personal property in some way, which they think they are entitled to remove and take home. This seems to be a common attitude among as computer programmers and engineers, even though it completely overlooks the fact that the employer is the proper legal owner of all work output. This group are usually the most technically capable and often have no difficulty in figuring out ways through the company’s security systems, although they are rarely motivated by malice and often come clean when they are discovered
  • want some personal benefit, usually when they are going to a new job or leaving the company to set up on their own. This group are usually the most motivated and are most determined to cover their tracks. They are also the most likely to lie about what they have been up to 

This last type tends to generate more disputes and litigation than any other. Yet often employers aren’t exactly sure what they can and should do when faced with a determined insider who is prepared to do or say whatever it takes to avoid getting caught, or paying the price. As a recent example of what can happen, the High Court has sentenced two men to prison for exactly this sort of behaviour. 

Determined insiders come unstuck 

In FW Farnsworth v Lacy, an ex-employee and his accomplice were given suspended 6-month prison sentences, even though it was their first offence and they were described as family men of good character. The hearing on 10 June 2013 heard that one of the men, an employee, had secretly passed sensitive information to an accomplice who had passed the information to a competing company. The information consisted of technical information around production processes, as well as pricing lists and other information useful to the competitor. When the company found out what was going on, they were granted an emergency injunction to stop the information breach, which they then used to negotiate another, but agreed, Court Order to uphold the non-compete clauses in the employee’s contract. So far so good – and most employees at this point would realise the game was up. But in this case, however, the competitor put extra pressure on the ex-employee so that he ended up breaching the agreed Court Order. Not surprisingly, Farnsworth applied for another Court Order, this time for the men to be punished for ignoring the existing Court Orders and the High Court willingly obliged. (Click here for a digest and comment on an earlier High Court decision in the same case on a different issue – whether Mr Lacy had impliedly accepted a variation to his contract containing the restrictive covenant at issue.)

While these examples do not hit the headlines very often, there is a fairly regular stream of these cases before the courts, as there is always a hardened minority who will take a calculated gamble that they’ll be let off the hook, either by their ex-employer or by the court. As this case shows, however, the courts are in a phase of expecting people to honour the contracts they have signed and to behave with commercial integrity. 

As another illustration of just how the courts have been prepared to go in recent years, in one case (Kynixa Ltd v Hynes), an assistant was ordered to pay £1M in costs to her ex-employer. The specific reason the court gave was that she should have told her employer that her boss, a senior executive, was planning a team move to a competitor. Because she not only didn’t tell the employer, but also carried on working for a while before also resigning to join the same competitor, the court said she was in breach of her duty of fidelity and good faith to the employer. As a result, the judge made an order for costs against her, saying ‘I simply do not see how one can be acting as a loyal employee when one knows that three senior employees (including oneself) may transfer their allegiance to a group of companies which includes a competitor and yet not only fail to divulge that knowledge but also say things which would have the effect of positively misleading the employer about that possibility’. 

Tip of the iceberg

There are many legal steps that can be taken once a determined employee uses their position to bypass security and remove business information. While many employees rely on the myth that little can be done to stop them, there are just as many that are happy to take the gamble that their employer will not have the will or know-how to pursue them. As these cases show, it doesn’t always have to be that way.

See also:



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