Protection of know-how and confidentiality clauses in employment contracts

Legal definition of a trade secret

In the past, case law distinguished between trade and business secrets within the meaning of the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb – UWG), which related either to technical operations or to commercial matters and for which, in each case, the mere express, implied, presumed or objectively determined intention of the owner of the secret was ultimately sufficient for classification as a secret.

With the entry into force of the Act on the Protection of Business Secrets (Trade Secrets Act) (Gesetz zum Schutz von Geschäftsgeheimnissen – GeschGehG) in 2019, which transposed the EU Confidentiality Directive into national law, the concept of a business secret has been defined by law for the first time. Accordingly, a trade secret can be information that is not generally known or readily accessible in the circles that usually handle this type of information and is therefore of economic value. This includes, for example, manufacturing processes, prototypes, customer and supplier lists, cost information, business strategies, company data or market analyses. The owner of the secret must also have taken appropriate measures to maintain secrecy and have a legitimate interest in maintaining secrecy.

If the requirements are met, the employer as the owner of the secret is entitled to various claims in the event of an infringment of the secret by the employee: removal and injunction (Section 6 GeschGehG), destruction, surrender, recall, removal and withdrawal of infringing products from the market (Section 7 GeschGehG), information (Section 8 GeschGehG) and, if the infringer is responsible for the act, damages (Section 10 GeschGehG).

Prerequisites for claims under the Trade Secrets Act

In order to assert its claims under the Trade Secrets Act against the employee, the employer must, in addition to the act of infringement, in particular establish and prove the existence of a secret within the meaning of the GeschGehG.

a) Secrecy

First, the secrecy or the requirement not to disclose the secret must be explained and, if necessary, proven. According to a recent court decision (ArbG Aachen, 13 January 2022 – 8 Ca 1229/20), the evidence related to the protected information must be substantial and detailed so that an expert can assess whether the information is actually secret or not in the public domain and in order to prove that an advantage would result from it.

Case law affirms that the information is already in the public domain if an interested party can find out the relevant facts without any particular difficulty or effort (BAG, 26 February 1987 – 6 ABR 46/84).

b) Protection measures

Secondly, the existence of adequate steps to keep the information secret must be shown and it must be explained which material and adequate measures have been taken in each individual case. The confidentiality measures required depend on the nature of the trade secret and on the circumstances of its use.

Secrecy measures are considered appropriate if the owner has done everything necessary and reasonable to prevent the information in question from becoming public. According to case law, the appropriateness of secrecy measures must be assessed objectively and evaluated according to the circumstances of the individual case in terms of a proportionality test (LAG Baden-Württemberg, 18 August 2021 – 4 SaGa 1/21). The minimum standard is that relevant information may only be entrusted to persons required to carry out their task and who are obliged to maintain confidentiality (the need-to-know principle).

In assessing reasonableness, the following aspects may be taken into account: Value of the trade secret and its development costs; the nature of the information; the importance to the company; the size of the company; the usual confidentiality measures in the company; the way the information is marked confidential; and agreed contractual arrangements with employees and business partners.

For employers, this means that reasonable steps must be taken specifically geared to the individual secrets if they want to place certain information under the protection of the Trade Secrets Act.

Secrecy measures under labour law

In addition to various technical and organisational measures, employment contract provisions are also typical components of the protection within the meaning of the Trade Secrets Act. However, confidentiality clauses in employment contracts can also acquire an independent significance if the other strict requirements of the Trade Secrets Act, in particular the existence of appropriate confidentiality steps, are not met. 

a) General obligation to maintain business secrets

From the commencement of the contract, all employees are subject to the obligation to maintain the confidentiality of business secrets, which is an obligation arising from the employment relationship (BAG, 15 December 1987 – 3 AZR 474/86). This obligation continues to apply even after termination of the employment relationship. In the legal literature, however, it is predominantly assumed that the concept of a secret within the meaning of this case law today corresponds to that of the Trade Secrets Act and so also presupposes that the owner of the secret will also need to have adequate protective measures for each category of secret. 

b) Drafting of contractual confidentiality clauses

In view of this limited scope of protection under the Trade Secrets Act and the general ancillary contractual obligations, many employers have always included much more far-reaching confidentiality clauses in their standard employment contracts, covering "all confidential matters" or similar. However, the effectiveness of such clauses is being increasingly questioned.

For example, in its above-mentioned decision, the Aachen Labour Court took the view that a binding clause without any time limit and without specifying the content does not sufficiently take into account the legal position of the employee protected by the Basic Law (ArbG Aachen, 13 January 2022 - 8 Ca 1229/20).

Accordingly, it must be clearly recognisable for the employee which business information is to be covered by the clause in question. 

In many cases, such an exhaustive naming and listing of such business information will be difficult, especially since at the time of entering into the contract it is often not yet foreseeable which confidential information the employee will come into contact within his field of work and in the course of his working life. On the other hand, it may be possible to determine this for employees with certain areas of responsibility and with a specific and comprehensive need for secrecy, such as in the areas of research and development or sales. According to a recent decision of the Labour Court of Hamburg, for example, a clause for customer consultants may generally extend to "all data on clients and target companies/target customers of which the employee becomes aware in the course of performing his duties and which are stored and administered in the company's databases" (ArbG Hamburg, 27 January 2022 - 4 Ca 356/20).

c) Legal consequences of violations

Violations of the general duty to maintain business secrets or of an (effective) confidentiality clause after termination of the employment relationship may give rise in particular to claims for injunctive relief and damages, and in the case of an ongoing employment relationship also to a right to a warning or termination. Appropriate contractual penalties may also be agreed for such cases.

Conclusion

Today, case law often places strict requirements on the effectiveness of general confidentiality clauses. In labour law practice it must be decided in each individual case whether the information to be protected can be meaningfully and conclusively grouped into certain categories. As a rule, this is often not possible. As a result, the usual and (too) far-reaching clauses will often continue to be used, even if these would not stand up to judicial review.