Coming across Employee Confidentiality Agreements or inclusion of the Confidential Information clause in an employment agreement is a common part and parcel of the professional front.  However, there have been instances wherein under the disguise of protecting confidential information, such agreements eventually end up as restrain clauses, contractually categorised as restraint of trade.

One such incident came to light in the case of M/S STELLAR INFORMATION TECHNOLOGY PRIVATE LTD. vs. MR RAKESH KUMAR & ORS, wherein the Delhi High Court has dealt with the extent and limitations of the “Confidential Information” clause in an employment contract.

Facts:

The Plaintiff in this case, M/S STELLAR INFORMATION TECHNOLOGY PRIVATE LTD, is a private company engaged in the business of Data Recovery, Data Migration and Data Erasure Solutions.

The Defendants are the former employees of the Plaintiff and their respective spouses, who presently run the company called Techchef, which is also carrying on the same business as that of the Plaintiff and is directly competing with the Plaintiff.

Plaintiff’s case is that the Defendants by virtue of their employment with the Plaintiff has access to their confidential data, information and trade secrets, which they are now using for securing business for their company Techchef. Furthermore, the Defendants are continuing to approach the Plaintiff’s customers and soliciting work from them.

Arguments:

The Plaintiff claimed that the Defendants have breached the “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement” entered into at the time of joining the Plaintiff company.

Also, it is claimed that the Defendants have stolen the Plaintiff’s client list, which includes the phone numbers and contact details of the concerned persons, and are using the same for their business. The Plaintiff therefore claimed copyright infringement for their client list.

These claims were countered by the Defendants stating that they did not have any confidential information pertaining to the Plaintiff and their clientele. It was submitted that names of almost all large customers of the Plaintiff are advertised on their website and therefore, are in the public domain.

The Defendants further argued that they could not be restrained from carrying on their business or approaching the customers as any such restrictive covenant in the Agreements would be void by virtue of Section 27 of the Indian Contract Act, 1872.

Court’s observation and judgment:

The Court was convinced that the expression ‘Confidential Information’ in the respective “Confidentiality and Invention Assignment Agreement” and “Employee Confidentiality Agreement” is defined in very wide terms. However, any information which is otherwise available on the Plaintiff’s website (public domain) cannot be considered as confidential information, and its use cannot be restrained in any manner.

As far as the issue of approaching Plaintiff’s clients by the Defendants is concerned, the Court was of the opinion that the names of customers requiring data recovery services or other services relating to data are in public domain and can also be found from using search engines on the net. The Court further held that since there was no evidence that the Defendants had copied the client list, there is no question of copyright infringement.

The Court also noted that the agreements do include Non-Compete clauses wherein the Defendants are restrained to carry out competing business for a specified period of 1/2-3 years after the termination of their employment. However, there is an inbuilt exception to the said clause, wherein the Defendants would not be obliged to comply with Non-Compete clause if they can prove that they have carried on the business activity without using of any confidential information.

It was held that, “by expanding the width of the expression ‘confidential information’ to include information which is in public domain, the Plaintiff is not seeking protection of proprietary or confidential information, but is essentially seeking a restraint on trade.”

Therefore, the Court dismissed the plea of the Plaintiff and held that, “Once it is held that in the guise of a confidentiality clause, the Plaintiff is attempting to enforce a covenant in restraint of trade, the same must be held to be void.”

Conclusion:

The Court in the instant case has rightly opined that giving a wide and broad interpretation to confidential information clauses in employment agreements would challenge the validity of the whole agreement as such clauses would fall under the ambit of Restraint of Trade. The Court also precisely observed that an information available on a public domain cannot be included in the purview of confidential information and no proprietary rights can be claimed over the same.