THE INTERPLAY BETWEEN LABOUR LAW AND INTELLECTUAL PROPERTY: PROTECTING TRADE SECRETS IN SOUTH AFRICA

In South Africa, the interplay between labour law and intellectual property (IP) law is critical for businesses that rely on proprietary information and trade secrets to maintain a competitive advantage in their market. When employees leave an organisation – especially those with access to sensitive data – there is often a risk that confidential information could be stolen or exploited. This article introduces legal protections available, remedies for breaches, and practical measures employers can take to safeguard their trade secrets, also known as “confidential information”.

What is a trade secret?

Before information can be recognised as a trade secret, it must meet three well-established requirements derived from South African case law.

First, the information must not only pertain to trade or industry but must also be capable of practical application within these domains. This ensures that the information has a functional or operational purpose in a business context.

Secondly, the information must be secret or confidential. This means that, objectively assessed, it must be restricted to a limited group of individuals or a closed circle. As the courts frequently state, the information must “not be public property or public knowledge.” Confidentiality is a cornerstone of the protection afforded to trade secrets.

Thirdly, the information must, when viewed objectively, hold economic or business value for the party seeking protection. The utility of the information in contributing to commercial advantage underscores its qualification as a trade secret.

The type or nature of business information is irrelevant; any information that satisfies these three criteria qualifies as a trade secret, regardless of its specific form or content.

Legal framework for protecting trade secrets

Labour law obligations

While the Basic Conditions of Employment Act and the Labour Relations Act govern the employer-employee relationship, they do not specifically regulate the protection of trade secrets. Employers must rely on contractual agreements and common law principles, such as the duty of good faith, to prevent breaches.

Intellectual property protection

South Africa’s IP laws, including the Patents Act, the Copyright Act, the Trade Marks Act, and the Designs Act, provide direct protection for registered IP. For unregistered IP, including trade secrets, protection is found in common law principles of confidentiality.

Addressing trade secret theft by ex-employees

Addressing trade secret theft by ex-employees

Theft or exploitation of trade secrets or confidential information often arises in cases such as:

• Direct competition: Employees join a competitor and disclose proprietary knowledge.
• New ventures: Employees use trade secrets to establish their own business in competition with their ex-employer.
• Third-party disclosure: Employees sell or leak sensitive data to unauthorised parties.

Legal remedies for employers

Employers have several legal options to address breaches of confidentiality, including:

• Non-disclosure agreements: Employers can enforce non-disclosure agreements signed by employees, which explicitly outline confidentiality obligations. Breaches allow employers to claim damages or seek interdicts to prevent further misuse.
• Restraint of trade clauses: Restraint of trade clauses in employment contracts can prevent employees from working for competitors or starting similar businesses. South African courts enforce these clauses if they are reasonable and protect legitimate business interests.
• Fiduciary duty claims: Senior employees or those in positions of trust owe a fiduciary duty to their employers. Breaching confidentiality may constitute a breach of this duty, allowing employers to pursue remedies.
• Criminal prosecution: The Cybercrimes Act criminalises the theft or unauthorised dissemination of confidential data. Employers can lay criminal charges against ex-employees for unlawfully accessing or disclosing sensitive information. Yikes!
• Common law remedies: Employers can bring claims for unlawful competition if an ex-employee uses stolen information to gain an unfair advantage. Courts can award damages and grant interdicts to prevent further harm.

Proactive measures for employers

Employers can mitigate risks by taking proactive steps to protect their confidential information:

• Comprehensive employment contracts: Include non-disclosure agreements/clauses and reasonable restraint of trade clauses in employment contracts. It is advisable to clearly define what constitutes trade secrets or confidential information.
• Training and awareness: Regular training sessions can ensure employees understand their confidentiality obligations and the consequences of breaches. It is often also necessary to educate employees of the fact that their employer will own intellectual property rights vesting in any works created by them during the course and scope of their employment with the employer.
• Access control: Implement strict access controls to limit exposure to sensitive information. Use password protection, role-based access restrictions, and data usage monitoring.
• Exit procedures: During exit interviews, remind departing employees of their obligations regarding confidentiality. Revoke their access to company systems as soon as possible and ensure all company property is returned.
• Monitoring and investigations: Establish mechanisms to detect and investigate breaches promptly. Forensic experts can help trace stolen information or abuse of confidential information.

Conclusion

The intersection of labour law and intellectual property law in South Africa highlights the importance of safeguarding confidential information while balancing employee rights. Ex-employees who abuse or steal proprietary data face serious consequences, including contractual claims, civil remedies, and potential criminal prosecution. However, businesses must take a proactive approach by implementing robust contracts, training, and access controls.

At Wolmarans and Susan Incorporated, our attorneys specialise in both intellectual property and labour law. We are ideally placed to assist your business with drafting enforceable agreements, developing protective measures, and pursuing legal remedies against ex-employees who breach confidentiality. Contact us today to safeguard your business’s most valuable assets and ensure your competitive edge is protected.