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Protection of Confidentiality in Labour Law under the Trade Secrets Act

The Trade Secrets Act (nearly) a year later – Is the protection it provides still current?

“Knowledge is power.” However, knowledge is also a significant “capital asset” of a company. Know-how creates competitive advantages and will ultimately determine the success or failure of a venture. Employers must take measures to protect existing know-how from third parties, especially from competitors, which do not (yet) have any knowledge of this know-how. Employers must also secure the know-how and prevent their own “knowledge bearers” from disseminating the know-how without authorisation and they must secure any know-how that employees will develop in the future as company know-how. The Trade Secrets Act (Geschäftsgeheimnisgesetz, GeschGehG), which entered into force almost one year ago on 26 April 2020, was designed to help better protect trade secrets. Still, the protection of know-how presents a significant challenge, also from a legal perspective.

Employment law context of the Trade Secrets Act

Despite the immense significance of the protection of trade secrets, there was previously only a few rules on the issue in the Act against Unfair Competition (Gesetz gegen unlauteren Wettbewerb, UWG). In practice, trade secrets were protected through confidentiality provisions in employment contracts, protective rights and post-contractual non-compete clauses. The European Directive on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (Directive 2016/943/EU) entered into force in Germany as the Trade Secrets Act (GeschGehG) on 26 April 2019. Employment law is not central to the protection of trade secrets under the Act. “The rights and obligations under the employment relationship and the rights of employee representatives” remain unaffected by the Trade Secrets Act. This does not, however, mean that the Act does not affect employment law. To protect their trade secrets, employers can now make use of the rules in §§ 17 and 19 of the Act against Unfair Competition from a criminal law perspective and the rules of the Trade Secrets Act from a civil law perspective.

What is a trade secret?

In practice, a variety of relevant information is referred to as business or trade secrets. This includes in particular, customer and price lists, formulas, suppliers and conditions of supply, calculations, analyses, prototypes, manufacturing procedures, strategies, etc. While this is all relevant information for a company, it is not necessary a trade secret within the meaning of the Act. According to the definition in § 2 (1) No. 1 of the Trade Secrets Act, a trade secret is information, which

  • as a body or in the precise configuration and the assembly of its components, is generally not known among or readily accessible to persons within the circles that normally deal with this kind of information and therefore has economic value and
  • has been subject to reasonable steps under the circumstances to keep the information secret by the lawful holder and
  • for which there is a justified interest in keeping the information secret.

What is allowed and what is prohibited?

Even if something is a trade secret under the definition in § 2 (1) No. 1 of the Trade Secrets Act, not all dealings with such information are prohibited. In particular, someone might happen upon a trade secret through their own discoveries, creations, observations, examinations, restorations or tests of a product or object (so-called reverse engineering). Dealings with trade secrets are also allowed when they are authorised e.g. based on law or contract (§ 3 Trade Secrets Act). In contrast, a trade secret must not be obtained through unauthorised access, unauthorised acquisition, unauthorised copying or any other action that violates the principle of good faith (§ 4 Trade Secrets Act).

In exceptional cases, a trade secret may be obtained, used or disclosed – without having to fear consequences – when it reveals illegal activities or professional or other misconduct and the disclosure serves the general public interest (so-called “whistleblowing”). The Act also contains an exception for the disclosure of trade secrets to employee representatives, such as works councils (§ 5 Trade Secrets Act). This exemption is based on the statutory confidentiality obligations on members of works councils - which unfortunately are not always upheld in practice - under § 79 Works Constitution Act.

To-do’s for trade secret protection

In order to obtain the most comprehensive protection possible for trade secrets and protect the know-how in the best way possible, employers have a few important to-dos. It is not (or no longer) enough for something to simply be a trade secret for it to fall under the protective scope of the Trade Secrets Act. In accordance with the definition of trade secrets, employers must actively take “appropriate measures to keep the information secret”. These measures can be technical, organisational or contractual. Technical measures can include the use of secure passwords, the encryption of electronic information, keeping the information locked away with documented access, firewalls, authorising access only for particular groups, and/or the surveillance of data flows. Organisational measures, such as the nomination of responsible persons, labelling trade secrets as such, restricting access rights or providing instructions for the handling of sensitive information might be considered. Contractually, primarily confidentiality obligations can be applied, but specific prohibitions against the use or disclosure of information might also be considered. In any case, the measures taken must be documented to later show and prove that “reasonable measures were taken… to keep the information secret.”

Possibilities under employment law

Contractual instruments (under employment law) are vital for the comprehensive protection of know-how. These include

  • tailored confidentiality provisions in employment contracts
  • separate confidentiality agreements (NDAs) and/or
  • post-contractual non-compete clauses.

In addition, it can be helpful to only provide personalised information. For example, information can be provided in paper format with the name of the recipient on it. This prevents and makes it easier to investigate any unauthorised disclosure. Relevant employees should receive regular training on dealing with trade secrets and the possible measures that can be taken to protect such trade secrets.

Summary

Companies must protect their trade secrets from third parties (competitors, customers, contracting authorities) and internally from their own employees. The fact that the Trade Secrets Act has now been in force for nearly a year provides the impetus needed to assess the measures taken for the protection of your know-how and, where necessary, to adjust or increase the protection provided by such measures.

Markus Künzel, Attorney, Accredited Specialist for Labour Law, BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Munich

Dr. Erik Schmid, Attorney, Accredited Specialist for Labour Law, BEITEN BURKHARDT Rechtsanwaltsgesellschaft mbH, Munich

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Kontakt

Markus Künzel T   +49 89 35065-1131 E   Markus.Kuenzel@bblaw.com
Dr. Erik Schmid T   +49 89 35065-1127 E   Erik.Schmid@bblaw.com