Legal (and Ethical) comment

Citation

Hannabuss, S. (2002), "Legal (and Ethical) comment", Library Hi Tech News, Vol. 19 No. 8. https://doi.org/10.1108/lhtn.2002.23919haf.001

Legal (and Ethical) comment

Stuart Hannabuss

The knowledge economy has accelerated interest in intellectual capital as a source of economic and competitive advantage for organizations. Such intellectual capital includes intangible assets like intellectual property rights (IPR), customer connections, information about channel relations or the supply chain, ideas, know-how, and company experience. Add intangible assets like licences to this and it is no surprise that the company valuation of Microsoft is said to be 95 percent intangible assets. The IPR angles on all this have been well covered by many commentators. What is often missed are the implications for the contract of employment.

Knowledge working and the contract of employment

At the heart, the legal heart at least, of relationships between employees and employers is the contract of employment. This has often been called a device to manage employees, reflecting that well-known definition of human resource management, which is getting things done through people. There even seems to be a spectrum of inclusiveness here, through people (as if they are invisible), by people (as if they are mere knives and forks), and with people (the true era of inclusivity and team working, collaborative and stakeholder-oriented). Less well known is the way in which the contract of employment is a way of managing intangible assets.

The contract of employment is other things as well, for instance a gateway to statutory and common law employment protection rights. The operation of the contract is governed (at least in the UK) both by common law in express and implied terms and by specific legislation like the Equal Pay Act 1970. Express terms are used by employers to underpin their employees' implied obligations, so that, for instance, the employee will devote his or her whole time and effort to his or her employment, and not exploit his or her employer's confidential information or disclose it to third parties.

The contract of employment and express terms

Express terms that seek to restrict the activity of employees after the relationship has ended (when the contract of employment has ended for whatever reason) are known as restraint clauses. These derive from the law on the restraint of trade, which seeks to reconcile two opposing interests – the employer's right to protect trade secrets and confidential information and know-how on the one hand, and the employee's right to take work from any employer he/she chooses, including himself if he/she is self-employed. These days contractual restraints take the form of restrictive covenants, garden leave clauses, or both. Restrictive covenants seek to restrict the freedom of employees to form contracts with other employers, for instance, in terms of soliciting customers, or disclosing confidential information to competitors. They also seek to prevent the former employee from competing against the former employer for a defined period.

Clearly the express terms of the contract of employment apply with particular energy to forms of intangible assets like confidential information and intellectual property rights. There is a proprietary interest on the part of the employer in preventing unfair competition, say if a former employer takes away software, along with source codes, developed while in employment ("in the course of employment", using the employer's resources). It is, however, difficult to separate out trade secrets from confidential information, and to separate out confidential information/know-how from what any employee might legitimately and reasonably have acquired as part of the general skill and experience of fulfilling his employment duties and obligations.

There are times, too, when a further distinction comes into play such as that between objective knowledge, i.e. trade secrets which are often easy to substantiate and may be directly associated with patents or trademarks or other proprietary entities; and subjective knowledge, such as the knowledge said to "belong" to a particular employee. This, like the recent debate about asbestos poisoning and the alleged impossibility of attributing the start of the disease to any particular time and place, and hence any particular employer, is only possible to determine on a case by case basis and then, in ultimate epistemological terms, it remains elusive.

It is also relevant to argue that the confidential information, if disclosed, would harm the employer. We can safely presume that the disclosure of trade secrets would have this effect. UK courts do not enforce restrictive covenants that seek to protect subjective knowledge, so it is not possible to restrain an employee from using his or her individual skill or knowledge after leaving employment. A further test can be used, that of asking whether the employee concerned can innocently and spontaneously recall the confidential information, and can do this, and does this, without evidence that there has been a deliberate attempt to memorise the information. This arguably would suggest, even "prove", that the information had become part of the employee's general knowledge. With knowledge workers and information professionals, whose marketability and indeed working reputation and identity depend on the exploitation of this general knowledge, in highly specific and coherent ways, the distinction between objective and subjective knowledge is particularly important.

It should also be added that the kind of work, and level of seniority and responsibility of the employee matter in such cases. It would appear, other things being equal, that senior managers, especially senior managers with access to and responsibility for information and information systems in an organization, are more likely than junior employees to know confidential information about the intellectual property and customer and supplier transactions. Employers, it is argued, have the right to protect themselves against unfair exploitation. Other evidence would be whether the employee had direct contact with, say, customer or supply chain database information, or confidential financial or new product development information. There may well be third party rights here too.

Normally former employees have the right to work for which ever employer they like. In these circumstances, however, the courts are prepared to allow employers to restrict their former employees working for competitors. The key reason is to prevent trade secrets passing into the hands of a rival, and to restrict the flow of confidential information, even where it may arguably be defined as subjective knowledge. Another incentive for employers is probably to fire a warning shot across the bows of any potential rival who is seeking to poach employees. Key knowledge employees are highly desirable and in consequence highly mobile. A life of jobs, rather than a job for life, emphasizes the need for competitive advantage on a personal training and development track, in full or part time employment or in the role of agent like consultant.

Where employers have an interest, or believe they have, in preventing former employees from working for competitors, garden leave clauses can be used. The employer continues to pay the salary of the employee, but relieves the employee of any contractual duty to come to work. The expectation is that the employee can therefore be prevented from causing damage to his employer's interests during the period of garden leave. There are times when both restrictive covenants and garden leave clauses are used.

The contract of employment and implied terms

Employees and employers are protected by implied terms. Certain implied terms are implied in the contract by common law. An example of this is the employer's duty to take care and provide employees with a safe working environment. As for the employee, he or she has a duty to adapt to new working methods and take care of themselves and their fellow employees. Even here, especially here, the employer seeks to protect their intangible assets from unfair exploitation by their employees. This extends to former employees too.

In the employee's implied duty of good faith and fidelity, we see the foundation of this. It derives from the master-servant philosophy and predicates trust and fidelity. It contains more than a hint, too, of fiduciary responsibility, because many relationships, say in small firms between highly trained professional technical and managerial staff, or between partners, or between entrepreneurs and partners in joint ventures, imply degrees of trust and reliance over life-enabling resources like life and investments. The presumption is that employees serve employers honestly and faithfully. They make reasonable efforts to further and promote the employer's business interests, and forgo and avoid any activity or act, which harms those interests. For example, downloading, particularly content, on the Internet while at work, representing the company's interests in particular ways by email while being presumed to speak on behalf of the firm (a form of misrepresentation called estoppel in UK law), or disclosing confidential information to a competitor. Of course there are whistle-blowing and public interest exceptions.

This implied duty of fidelity is relevant to the protection of an employer's interests in intangible assets. Given the increasing reliance on such assets, and their proportionality with company valuation, the relevance of this implied duty of fidelity is stronger than ever. Under the law, employees are bound to surrender any property rights they have to inventions created or described or developed while in the course of employment with a particular employer. The employee also has an implied duty not to disclose his employer's confidential information. That could mean (and usually does mean) that, say, computer software developed at a particular time for employer X belongs to employer X and not employee Y who happened to be working for him at the time. There have been many cases of employees taking "their" ideas or inventions with them when they disengage from a company. Then, developing and commercially exploiting them for themselves or under the aegis of a later employer, arguing that the invention was theirs, and that even if it was not, then the adaptation was theirs (the famous distinction between an original work and a derivative work).

The employee also has a duty not to disclose his/her employer's confidential information. The law has had difficulty with some of the concepts in the UK. For instance in Scots law it is not a crime for an employee to dishonestly exploit his/her employer's confidential information, and in English law there has been debate as to whether "information", qua information, is a commodity or entity exploitable as an object of theft. There is some difference, then, between UK law, which, subject to the case, holds to these views, and US law where it is a felony to misappropriate any scientific or technical information, design, process, procedure, formula, computer program, or information stored in a computer.

The contract of employment provides the means by which an employer may protect his proprietary interest in trade secrets and confidential information from exploitation by his current and former employees. Confidential information is usually defined as an employer's specific trade secrets, knowledge of the employer's customers and their requirements, pricing and tendering procedures, information about suppliers and vendors and their performance and any sensitive decision made about them. It will also include any other information imparted to the employee in confidence that cannot be regarded as trivial. For example, information about restructuring the company, or a merger and acquisition plan, and the like, but not whether the staff drinks tea or coffee are determinants of confidentiality.

Distinctions between formal and informal confidential information, and formal and informal disclosures of this type, are very difficult to make. They provide a field day for legalisms, since it is hard to attribute particular information sets to times and places. Ethnographically, too, in the ever-changing texture of organizational lives, it is virtually impossible to attribute particular learning moments to particular contexts. That said, email threads are taking on new evidential importance in company litigation, since increasingly more correspondence takes place on them, and they increasingly provide a time-sensitive archive of decisions made and information disclosed.

Implied terms have application even when the employee has left the employment of a particular employer. A leading case in the UK is Faccienda Chicken&/it; vs Fowler&/it; 1986 ICR 297, concerning the use of confidential sales information about a former employer's customers and prices. The case hinged on whether a former employee and his colleagues were prohibited from using this information by virtue of their implied duty of fidelity. Now many knowledge workers are dealing with chickens, or information about them, but the point holds. The criterion was that the information concerned was not trivial and was a trade secret. It was also considered that information held in the memory became part of the employee's general skill and knowledge, and as a result only trade secrets can be regarded as relevant to the implied duty of fidelity. This will not extend to all the information acquired by the employee during his or her course of employment with a particular employer. It may well be regarded as a fair test that an employee may have to demonstrate that he or she did not know how sensitive or confidential the information really was, although that opens up the door for a lot of special pleading.

We go back to objective and subjective knowledge, let alone the arguable distinction between trade secrets and confidential information (usually the second subsumes the first). Information, say, about prices or customers or suppliers may objectively be difficult to classify. For instance, is information about technical and managerial processes a trade secret? Are they protected in any formal way (i.e. by patent or trademark) and to what extent is it reasonable to assume that an employee knew, or did not know, about the protection and the confidentiality? We may reasonably assume that, if the information was held secure on an information system where levels of security were such as to imply their confidential status, above all to a senior employee assumed to know them, then it would be hard for any such employee to argue that the confidential status of the information was unknown.

Legislation, obligations, and ethics

The contract of employment is not the only element in the matter. There is also legislation, and this will vary between jurisdictions. From the UK perspective, relevant legislation will include the Copyright Designs and Patents Act 1988 and its descendants (some shaped by EU Directives and the like), the Public Interest Disclosure Act 1998 (which provides protection for employees who disclose information which might otherwise be regarded as confidential, and who suspect genuinely that malpractice is taking place in the organization), and the legislation about data protection, freedom of information, and human rights.

Equally relevant in the calculus of the knowledge worker, and his or her relationship with his or her employer, is professional ethics, which may pick up on responsibilities to the company, to colleagues, to a professional cadre, to the public at large. The obligations inherent in express and implied terms of the contract of employment extend into the field of professional ethics. Many codes of professional conduct reflect this. For instance, the code of the Society of Competitive Intelligence Professionals (http://www.scip.org/ethics.html) highlights zeal and diligence and the highest degree of professionalism, faithfully adhering to and abiding by one's company's policies, objectives, and guidelines, accurately disclosing all relevant information, and fully respecting all requests for confidentiality of information.

Similarly, the code of ethical business practice of the Association of Independent Information Professionals (http://www.aiip.org/ purethics.html) stresses how information professionals bear the responsibility of upholding honesty and competence and confidentiality, giving clients the most current and accurate information possible, helping clients to understand the information and how reliable such sources are, respecting client confidentiality, and recognizing intellectual property rights and licensing agreements and obligations imposed by them. Another example is the Fédération Internationale des Archives du Film (FIAF), where the code of ethics includes the rights of collections (archivists will respect and safeguard the integrity of the material in their care and protect it from any forms of manipulation, mutilation, falsification, or censorship), and the rights of future generations, the rights of colleagues (e.g. archivists will not knowingly be party to the dissemination of false or misleading information, and will not deliberately withhold information except where the confidentiality of a third party is involved). And so on.

It seems impossible to me to speak about professional obligations without speaking about ethics. Many codes of ethics, for instance, are based on norms and duties, often inspired by Kantian notions of deontology and duty (as reflected in categorical imperatives like "do not lie to your friends", which are rationally worked out and followed). The obligations, which characterize the contract of employment, above all, that between knowledge workers or information professionals and knowledge-intensive organizations, cannot fail to recognize the role of ethics.

That said, what we have is what the contract says and how legislation, national/federal or state is interpreted and implemented. Codes of ethics, too, are often normative for groups, rather disembodied professional groups however influential they are, rather distant when individual personal dilemmas occur at work. Practical and pragmatic ways of working out and working through notions like fidelity and duty of care, under the contract of employment, for professional employees, is never going to be easy. To be specific, it may be that personal ethics kick in (or do not) whenever complex obligations like subject knowledge, fidelity, and confidentiality appear. And there are times – perhaps more than we believe, for reasons of saving time and money – when we simply do not want to go to law when things go wrong.

Stuart Hannabuss (s.hannabuss@rgu.ac.uk) is a member of the faculty at Robert Gordon University, Aberdeen, Scotland and writes the "Legal Comment" column for LHTN