The constitutional principle of freedom to exercise a trade or profession, curbed by trade secrecy

Legal principles safeguarding different interests may come into conflict and must necessarily be weighed up. This is true for all legal principles, even in the world of business. Our system is governed by entrepreneurial freedom, which is of prime importance in a free economy. This freedom is guaranteed in Spanish law by the Constitution, from which the following principle has been drawn: “business is practised under the principle of freedom to exercise a trade or profession, and in the framework of the market economy, in accordance with the provisions of Article 38 of the Constitution”.

This entrepreneurial freedom is nevertheless limited to a certain degree by the prohibition of unfair practices, above all in the field of competition. The legal reasoning goes as follows: any competition is positive insofar as this is exercised with respect for good faith and honesty. Unfair conduct is indeed penalised, sometimes even criminally. This means that any such conduct must be scrupulously proven, which is not always a simple matter. Case law thus defines the boundaries of freedom to exercise a trade or profession, by punishing any deviant conduct.

How many companies have found themselves facing the following situation: the resignation of the firm’s key employees followed by these same employees’ incorporation of a competing company undertaking the same business as the one they have just left?

From our own experience it seems to us that most commercial organisations come up against this often unpleasant reality at one time or another. We are often consulted by clients wishing to find out what legal tools are available to them for minimising the damage that any such situation may cause their company or to prevent any outgoing staff from causing them too much harm.

Although the truth is difficult to understand when one is on the side of the “leaver”, insofar as resigning employees are simply using outside the company a know-how that they have gained as part of their professional work, their conduct represents healthy competition. In this case the former employer is only left with resorting to use the commercial weapons at its disposal so as to be sufficiently appealing to keep its customers and to prevent them from following the resigning staff, now become competitors.

On the other hand, if the behaviour of new competitors is considered as being unfair by judges, this could be punished in civil courts by awarding damages to compensate for the loss undergone by the victim of said unfair conduct, but also in the criminal realm, which is clearly much more crippling for underhand competitors.

One prominent example has been covered at length by the Spanish press since this ended up in a ruling handed down by Spain’s highest court, the Tribunal Supremo, on 18th May 2016.  This ruling put an end to a legal battle that had lasted for twelve years. In this matter, four ex-executives of a computer consultancy company had set up, a few days after their resignation, a company whose business was practically identical to that of their former employer and furthermore after taking information and data from the computer system.

Seeing themselves as victims of unfair competition and of theft of information protected by trade secrecy, the directors of the former employer than took the matter to court, accusing the four former executives of having appropriated information and databases belonging to this company even while they were still actively employed by this, thus taking advantage of the material assets of the company to set up their own organisation.

The Tribunal Supremo ordered the resigning staff to compensate their former employer on two counts: damages for the losses undergone through the unfair conduct, on one hand and compensation for the time spent by the employees in incorporating their new company, copying files, extracting and using the internal databases on the other. The total sum that the staff had to pay their former employer was around 180,000 €.

The judges grounded their decision on the fact that the data withdrawn constituted information belonging to the employer and should be protected by trade secrecy. This information had been accumulated, arranged and processed by the company over its years of existence and represented one of its assets, not accessible to the public and with a specific value. The appropriation of this data constituted unfair conduct by the resigning and competing staff.

This decision of the Tribunal Supremo is remarkable insofar as this goes against majority tendencies in case law, which only too often favours the principle of entrepreneurial freedom to the detriment of punishing unfair conduct and bad faith.

This provides a ray of hope to all the companies which are victims of data theft, undue appropriation of business secrets and conduct constituting unfair competition. It is however important to stress that evidence has to be produced in order to obtain redress in such a case.

Indeed, judges can only ground their decisions when they have material items enabling them to verify the truthfulness of the victim’s allegations. Without any proof a party will not under any circumstances win a case even if it is right.

Companies must thus determine what information deserves protection under trade secrecy and have their employees sign a confidentiality commitment and for protection of information which they may learn of as part of their work. Employees must specifically undertake not to disclose nor to copy or use the data for any purposes other than those of the company’s business. It is similarly shrewd to be able to supervise exchanges of emails and possible copies of information made from USB memory sticks or applications enabling storing massive documents (WeTransfer, Dropbox, etc.), or even transferring this information on the I.T. cloud.

All in all, it is important to take any precautions required at an early stage in the proceedings in law too, in keeping with the old adage of “prevention is better than cure”.

By |2018-10-20T22:52:07+00:009 March 2017|0 Comments

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