Breach of confidentiality clause

A recent court case dealt with this issue. The employee downloaded company documents to her own computer. She also deleted these documents from the company server. The employer invoked the confidentiality clause and the related penalty clause. Then claimed an amount of €70,000.00 in penalties from the employee.

Company files

In this case, a settlement agreement had been agreed with the employee to terminate her employment contract. One of the conditions in this agreement was that the confidentiality clause agreed in the employment contract remained in force, including after the agreed end date of the employment contract. A penalty would be imposed if the employee violated her confidentiality obligation. When the employee returned her work laptop and telephone at the end of employment, the employer discovered that the employee had downloaded company files onto her private computer and deleted them from the company server. The employer sued the employee for breach of the confidentiality clause.

Ruling

The court decided as follows. By deleting company files, the employee did not violate the confidentiality clause. After all, according to the court, no company information was taken outside the organisation as a result. However, the court did consider the fact that the employee had downloaded large numbers of company files to her private computer when she was negotiating the settlement agreement – because she said she might find it useful for a future job – to be a breach of the confidentiality clause. According to the court, the fact that the data was not shared with third parties and that the employee no longer had the data in her possession due to her computer crashing did not change this.

The lesson to be learned

The abovementioned ruling teaches us two important lessons. Firstly, it may be wise to agree contractually with the employee in the employment contract or the personnel manual that the removal of company files from the server is not permitted and, if desired, to attach a penalty to any violation. The second lesson is that an employee who downloads company documents to his/her own computer violates an applicable confidentiality clause. Even if the employee does not do anything with the documents and does not share these with third parties. Finally, you will not get rich from a penalty clause as the courts often mitigate the stipulated penalty. This is what happened in the case under discussion. In the end, the employee only had to pay €10,000.00 of the €70,000.00 claimed by the employer.

What does such a violation cost?

If you want to ensure that your employee complies with a confidentiality clause or any other clause, such as a non-compete clause, non-solicitation clause or ancillary work clause, it is sensible to agree with the employee that he/she will be liable for a penalty if he/she breaches certain provisions.

Penalty clause requirements

A penalty clause must always be agreed in writing, such as in the employment contract. It must also be clear what offences are subject to a penalty. And what the amount of the penalty will be. How the penalty will be used must also be stated. The proceeds of the penalty may go to a good cause or, if the employee earns more than the minimum wage, the amount of the penalty may be for the benefit of the employer. The amount of the penalty and its use are subject to strict rules if the employee earns the statutory minimum wage.

Finally, the law provides a choice in cases where confidentiality is breached, to either collect the penalty or seek compensation. Please note that it is not possible to collect both the penalty and the compensation. Not even if the amount of the penalty does not fully cover the damage. A penalty clause that both imposes a penalty and demands compensation in the event of a breach is – as was determined in the ruling mentioned above – invalid in whole or in part and only the compensation or the penalty is then awarded.

More information?

Do you have any questions? Please do not hesitate to contact me.

European Court of Justice 9 December 2021, ECLI(abbreviated):987 & District Court Rotterdam 7 March 2014, ECLI(abbreviated):3470

This article previously appeared in Rendement.