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Removal of business contacts by departing employees

Abstract

Business contacts are a key resource, and sectors like database marketing where businesses depend on contact information recognise this more than most. The ownership of such information may be a critical issue when employees leave the business and seek to take contact details with them to further their own, competing activities. This paper analyses a recent case on the ownership of contact information, and considers the steps businesses should take to safeguard these precious assets.

INTRODUCTION

The recent case of PennWell Publishing v Ornstein1 highlights the important issue of ownership of contact information, which is a vital resource for many businesses. Database marketers will be only too aware of the worth of such information, as their business depends on the provision of suitable contacts for marketing purposes. The situation the court grappled with in this case is not uncommon: who owns contact information taken by departing employees from their employer's computer system before leaving to start up their own competing business? This paper reviews the decision and considers what lessons can be learnt by employers wishing to safeguard such contact information.

THE FACTS

This case arose after a group of employees at PennWell decided to set up their own business. Having hatched the plan while still employed at PennWell they left the company to set up a business that competed with some of the business's activities.

Between them, the defendants had removed a substantial amount of information that would be valuable to their competing business and PennWell claimed that this was in breach of their contracts of employment. By the time of the trial, most of the issues had been settled between the parties but the third defendant, a Mr Isles, still maintained his right to retain a list of 1,650 e-mail addresses and other contact details. These were Mr Isles' list of Microsoft Outlook contacts that had been stored on his work computer.

Commonly, an employer whose employee is seeking to leave an organisation to set up or join a competing business is protected by a number of clauses in the employee's contract of employment. Relevant clauses in this case included the following restrictions:

  • — not to compete during and for two years following employment;

  • — not, during employment by PennWell, to have any other job or to be involved in another business;

  • — not to disclose confidential information before or after employment;

  • — to return all company property upon termination of employment; and

  • — a general duty of good faith and fidelity.

Prior to and during his employment, Mr Isles, who was a journalist, generated a long list of contacts. The list included business contacts made while working for his previous employer, details of contacts he had made while working for PennWell and details of family and friends. All were contained in the same list. He claimed that this was his property and that PennWell had no claim to any of this information. It was PennWell's position that the list was generated in the course of his employment and thus belonged to them. Interestingly, PennWell also argued late on in the proceedings that it owned rights to the contact information based on the information having been stored in a database protected by database copyright and another, still relatively new intellectual property right, database right.2 PennWell's claim required that Mr Isles deliver the list to PennWell and destroy any copies that he held. During the preparation for the proceedings, he had destroyed or returned various other types of information as required by PennWell and a number of court orders.

THE COURT'S DECISION

Mr Isles claimed to have developed a spreadsheet over many years containing all the contacts he had developed throughout his career. The court interpreted the situation differently and found that Mr Isles had taken the file containing the contact list directly from the claimant's computer system on the basis that the file had been generated by an export of data from Outlook on the employer's computer. Mr Isles had kept a spreadsheet as he claimed but at some point in the past this had been abandoned for a unified contact list held within Outlook.

The decision of the court was that the list belonged to PennWell. The list was not the same as a list of customers (or similar) simply copied or taken from an employer, which is a breach of the duty of fidelity (Robb v Green;3Bullivant v Ellis4). Owing to the importance of electronic communications in the modern day, such lists will tend to become mixed. Notwithstanding this, the list in its entirety would belong to the employer if it was generated on computer systems set up, maintained and backed up by the employer (and this would include remote access systems).

DISCUSSION

This case highlights the importance of giving thought to the possible effects of these sorts of clauses in employment contracts, particularly in sectors like database marketing where contact data are key to a company's business. The restriction on what is considered to be confidential information means that the interplay between confidential information and company property clauses can be important. Notably, the court held that PennWell could not rely on the confidential information clause in Mr Isles' contract as, following Faccenda Chicken Ltd. v Fowler,5 it is clear that the information was not sufficiently confidential, such contact details usually being in the public domain. Therefore, PennWell had to show that the list belonged to them rather than Mr Isles to be able to assert any control over it.

Although the case concentrated on a specific type of document (e-mail contact lists), it may be possible to apply its reasoning to other classes of documents. An important consideration in the case was that the document was a hybrid of data from Mr Isles' personal contacts and his business contacts generated through his employment. He argued that journalists have a particular claim to contact information as they need such contacts to perform the role of a journalist. This did not, however, affect the court's finding on ownership of this list — it considered that the list was PennWell's having been generated on its computer systems. It is also notable that, although the judge was ‘far from persuaded’ that the list was protected by database copyright, his comments did suggest that it could be protected by the newer database right. Database right has been considered again in the context of information removed from an employer's systems by a departing employee in Crowson Fabrics v Paul Rider and others.6 The High Court held in that case that database right subsisted, was owned by the employer and had been breached by the employee in removing the information in question.

That said, the court in the PennWell case did recognise that employees could have rights to some of the contact information in certain circumstances. Many employees will not realise that such contact details do not belong to them and should not be removed when they leave their employment. Accordingly, it is common practice for departing employees to copy some if not all contacts stored on their work computer or other storage devices. To allow for this, the court found that it may be reasonable to imply a term into the contract of employment that personal contacts can be copied. Further, the court held that in the circumstances of this case, certain business contacts could also be added to the personal file of addresses available to the employee on the basis that this was an important part of a journalist's job. The implied term was allowed because no e-mail usage policy restricting use of the PennWell system to solely business use had been communicated. An e-mail had been sent to Mr Isles referring to such a policy but the policy was not attached and thus its content had not been communicated. Such guidance, if it makes clear to an employee that they should not use their work systems for personal contacts, would override the implied term. The judge considered that this was a concession that PennWell had made and thought that this would be allowed by a reasonable employer.

OBSERVATIONS ON BEST PRACTICE

The judgment makes it clear that lists of contact details stored on an employee's work system belong to the employer, and any removal of these contacts could be held to be removing company property. Along with the more recent Crowson Fabrics case, it also highlights the fact that there may be intellectual property relating to the information such as database right that the employer may own. Clarity in storing of details is to be encouraged, with the court suggesting that compartmentalised storage should be preferred. In such circumstances, employees may be able to rely on the implied term, at least with regard to personal contact information, as in the PennWell case. An employer wishing to prevent mixed use of its systems must be clear in its company policy as to what may be stored and who owns the information, and it must communicate this to its employees. A clear policy requiring that all personal contacts and personal data be kept separate may be preferred by employers. The policy should clearly state that business contacts must not be kept in personal contact folders and a parallel monitoring policy should be in place to allow access to the personal space if (but only if) there is a suspicion of misuse. This would make it easier to police the problems associated with employees leaving to set-up or join rival businesses on a practical level, as well as strengthening the employer's position on ownership of the business contact information. Employment contracts should also be reviewed to ensure that suitable noncompete restrictions and clauses on ownership of intellectual property rights (including database rights and confidential information) have been included. If disputes do arise, employers should consider whether they are afforded any protection from database right in addition to protection under the departing employee's employment contract.

References and Notes

  1. (2007) EWHC 1570 (QB); (2007) IRLR 700.

  2. For background on these intellectual property rights and database right in particular, see ‘Legal Protection for databases in Europe: The vexed question of whether US businesses can benefit’ by Ewan Nettleton and Harjinder Obhi in The Journal of Database Marketing and Consumer Strategy Management, Vol. 11, No. 3, April 2004.

  3. (1895) QB 315.

  4. (1987) ICR 464.

  5. (1986) 1 All E.R. 617.

  6. (2007) EWHC 2942 (decision of the High Court of 20th December, 2007).

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Correspondence to Ewan Nettleton.

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Nettleton, E., Turner, I. Removal of business contacts by departing employees. J Database Mark Cust Strategy Manag 15, 126–129 (2008). https://doi.org/10.1057/dbm.2008.1

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