Michael Miller, Managing Associate at Freeths, specialising in Commercial Dispute Resolution, talks about his role and explains how businesses can protect their confidential information.
Can you give us an overview of your background, your journey into your role as a Commercial Dispute Resolution lawyer and your time at Freeths so far?
My route into law was unorthodox. In my teens I was obsessed with sport. I played for two football teams, was a national standard 800 metre runner, and I had a real ambition to be a professional and for that reason I studied Sports Physiology at university. However, there's no championship where you can make a good living. It's either top eight in the world or you’re living off lottery funding and done by your thirties. I therefore decided to make a complete career change and did the GDL and the LPC at the Manchester College of Law.
After I completed my training contract, I chose to qualify into Commercial Dispute Resolution. Whilst training, I was on a large trial in London for weeks that was really exciting. At that point, I knew that I did not want to do anything else. I loved the cut and thrust of it all and the drama of court.
I chose Commercial Litigation rather than specialising in one particular aspect because it allowed me to work on a wide spectrum of cases and broaden my horizons as a lawyer, business person and a negotiator. I can be working on a multi-million-pound shareholder dispute one day and then the next day there's a new inquiry disputing the ownership of a race horse. So, there’s a lot of variety. It keeps things interesting. There's so much to consider. Do we have all the pieces to the puzzle? How does the law apply? What is the client trying to achieve commercially? What is their opponent trying to achieve? How do we outmanoeuvre them? How do we keep costs down? And how do we tie that all in to create the strongest case possible and achieve the best outcome for the client? What is the best strategy? Is the dispute best resolved by persuasion or aggression or both?
We have a fantastic Commercial Dispute Resolution team in Manchester. I work alongside my friends Tristan Duncan and Zalena Vandrewala. Together we have almost 50 years’ experience working for entrepreneurs and PLCs. There is nothing that we can’t field as a team.
What are the most common types of confidential information that businesses need to protect?
Scientific formulas, information regarding tenders, customer databases, sensitive financial information, such as pay for employees and pricing lists for customers. The extent of the protection depends on the specific type of business. If it’s a niche area and a local competitor has managed to get their hands on a customer database or a specific formula that allows them to distinguish themselves from the competitors, then it could spell the end for them.
How has the increase in remote work affected the misuse of confidential information?
Because of remote working, we have seen a surge in former employees thinking they can set up the same business themselves by taking confidential information and also breaching their restrictive covenants. They have no qualms because they’re one step removed from the business, and they feel more empowered to go onto the system and take things because it doesn't feel the same if you're doing it from your own home.
Sophisticated employees are now also inclined to set up businesses on their own because they can do it from home, when they couldn't before as there was a perception, you needed a commercial office. They feel that, well, why don't I just do this and work with the clients I have? And rather than be paid a salary, be paid the fees that the clients are paying via a dividend?
Can you share some examples of how businesses have successfully protected their confidential information?
We’ve stopped competing businesses in their tracks and obtained undertakings preventing future misbehaviour, we’ve secured the safe return of confidential information and extracted 6 figure damages in compensation via the court.
What are the immediate actions a business should take if they discover a data breach?
Act immediately. In these types of disputes, time is of the essence and the first thing they should do is speak to a legal adviser straight away, because the horse has already bolted, so it’s not a case of being able to prevent further access because it's already been taken. It’s a case of speaking to us and providing as much information as possible, finding out exactly what's happened and how long it's been going on for so we can start the damage limitation process. We have a digital forensics expert in house that can help interrogate the victim's servers to find out exactly what's been taken and when.
What legal steps can a business take if they suspect an employee is misusing confidential information?
It’s a case of us working closely together, building a picture and then striking at the right time by, sending appropriate communications to the individuals and the new company. We also take the appropriate legal steps, which may be an injunction for them to stop and deliver up the things that they've taken. We will often bring a claim for damages. If it's a new business that they've set up on their own (rather than them going to a competitor) and they're working with your former customers, we’ll take action to stop that business from trading immediately to curtail; the springboard that they've had.
How can businesses ensure their employment contracts are robust enough to protect against misuse of confidential information?
Define what you are protecting. There might be a dispute as to whether what has been taken was confidential. In general, one of the main reasons why something might not be deemed confidential is because it was already in the public domain. In terms of protecting confidential information, there's an implied term that exists outside of any contracts. But the best thing to do is to get a separate confidentiality agreement so it’s codified, and it's agreed. They’ve expressly agreed what to not take and misuse.
Ensure that your restrictive covenants are in place and that they are enforceable to prevent your business from suffering because of individuals leaving and not just taking confidential information but working with competitors your former clients and your suppliers. Expertly drafted, restrictive covenants can prevent them competing with your business after their employment ends. You can't join a competitor for a specific period of time. You can’t deal with a client for a certain period of time. You can't poach employees to come and work for your new business etc. These are commonplace but often companies will just put boilerplate ones in there and when it comes down to it and there's a dispute over it, they’re not enforceable because they haven’t been specific to that employee. Whether or not it's enforceable requires specific legal advice to make sure that you've got the best chance of them being enforceable, should a dispute ever arise.
Could you discuss a recent case where your team successfully resolved a dispute involving misuse of confidential information?
There was a recruitment business set up by three entrepreneurs and they each owned a third of it. Two were serial entrepreneurs and investors with multiple businesses and the other was the managing director. As it was a new start up, they’d be losing money because they were paying the salary of the managing director and the new staff that he'd employed, but eventually it would break even and eventually it would start making money and then they'd all start drawing dividends. After about a year, it started to become successful, but the managing director’s wife set up a new company. The managing director downloaded all the customer database, gave it to his wife and then the only other two members of staff went working for the wife’s business. Ostensibly he wasn't involved because he went working elsewhere. The two entrepreneurs weren’t involved on a day-to-day basis, so before they knew it, the rug was pulled from under their feet and there was another business masquerading as the business that they’d helped create. They came to us and asked what they could do. We brought a claim against the managing director, his wife and the two employees for misuse of confidential information and conspiracy. We alleged they had all worked together with an aim to take the business from our clients, move it to a new one and gain from that. It ended up in a six-day trial in the Manchester High Court and our client won against four of the five defendants. One of them was deemed to have not been involved, but three of the other four were ordered to pay our client the value of the lost business. We got an expert to value the business as it was before it happened and that's what the deemed losses were.
What are the potential consequences for employees who breach confidentiality agreements?
Really serious. Potentially life changing. Bankruptcy. They can be ordered to pay the profits the new business has made as a result of taking that company's information. They can face an injunction and, if it's awarded, they'll have to pay the cost of obtaining the injunction, which can cost in the tens of thousands of pounds. And then you're living with an injunction, which means that if you breach that the next step is criminal proceedings. And then if you go and work for a competitor, there could be a letter from a solicitor saying that you’re not allowed to work for them and that can harm the relationship with your new employer. They are in trouble with a competitor, and it'll just set that relationship off on the wrong foot.
What measures can businesses implement to prevent employees from poaching clients or setting up competing businesses?
There are many specific types of businesses that the best thing to do, I would say, is to have a health assessment and audit by a specialist advisor to review threats and risks. The employment contracts, the places that confidential information is stored, the knowledge of the employees about what is and what isn't confidential information all need to be considered. That’s the best way to try to prevent it happening. It still might happen, but then you're more in the driving seat.
For more information on Commercial Dispute Resolution, email Michael.Miller@freeths.co.uk.