Protection of Company Secrets and Non-Competition, and the Right of Recourse against Employees

Introduction: The Problem of Protecting Commercial Secrets in a Competitive Environment

Companies in the modern era face a fundamental challenge in maintaining the confidentiality of their commercial information, which constitutes the core of their competitive advantage and the cornerstone of their success.

This problem arises from an inevitable paradox: a company invests vast resources in training and developing its employees, granting them, by the nature of their work, broad authority to access its most sensitive operational and commercial secrets, from marketing plans and client lists to pricing strategies. This very investment in human capital is what creates the most significant vulnerability.

A company’s success and distinction in the market make it a target for competitors, who seek by various means to obtain the information that gives it an edge. The poaching of employees who hold these secrets, or enticing them to leak information, becomes a primary tool in unfair competition, posing a great threat to the continuity of commercial activity and the integrity of the market.

From this standpoint, it has become imperative for companies to establish multi-faceted protection mechanisms that are not limited to technical fortifications but extend to include an integrated legal and procedural system aimed at protecting their intangible assets and deterring all illegal practices that threaten the continuation of their success. This study addresses the legal foundations upon which a company can rely, the caveats that must be heeded, and the legal solutions available to ensure its right to confront these challenges.

First Axis: The Employee’s Liability and the Company’s Right of Recourse

The company’s right to pursue an employee who has leaked its information is not based on a single legal ground, but on an integrated system of liabilities arising from their action, which grants the company multiple and robust options for recourse against them.

1. Contractual Liability: Direct Breach of the Employment Contract

The employment contract signed by the employee represents the primary document governing their obligations. In our case, the act of leaking constitutes an explicit and direct breach of their contractual obligations, specifically:

• • Clause 11 (Confidentiality): The employee has breached their explicit undertaking not to disclose or use any trade secrets or confidential information they became privy to by virtue of their work, such as client lists and pricing agreements.
  • Clause 9 (Termination of Contract): This clause grants the company the right to terminate the contract immediately if “gross misconduct” is proven, and leaking confidential information to a competitor is a perfect embodiment of this concept.

Right of Recourse: Based on this liability, the company is entitled to dismiss the employee with cause and with forfeiture of their end-of-service benefits and payment in lieu of notice, which is known as “dismissal with forfeiture of benefits.”

2. Labor Liability: Violation of Kuwaiti Labor Law

Labor Law No. 6 of 2010 for the Private Sector supports the company’s position with mandatory provisions that cannot be contravened:

• • Article (61): This article imposes a general legal duty on every worker to “preserve the secrets of the work” and considers disclosure a “breach of the contract”.
  • Article (41): This article grants the employer the right to dismiss the worker without notice, compensation, or indemnity if the worker “discloses secrets of the establishment which has caused or would have caused substantial losses to it”.

Right of Recourse: These articles provide the company with an absolute legal basis to apply the penalty of dismissal with forfeiture of benefits, which is the most severe penalty under labor law.

3. Criminal Liability: Characterizing the Act as a Criminal Offense

The employee’s act can be legally characterized to fall within the scope of criminalization, which elevates the matter from a mere labor dispute to a crime punishable under public law.

• • Article (240) of the Penal Code (Breach of Trust): This article applies to the situation, as the employee received “documents and other writings” (whether physical or electronic) in trust by virtue of their work. Their use or dissipation of these for a purpose other than the company’s interest (by leaking them) constitutes the complete material and moral elements of the crime of breach of trust.

Right of Recourse: The company has the right to file a criminal complaint with the Public Prosecution, which subjects the employee to criminal penalties including imprisonment and a fine.

4. Civil Liability: The Right to Compensation for Damages

The rules of the Civil Code allow the company to have recourse against the employee to claim financial compensation for all damages it has incurred as a result of their wrongful act.

• • Basis of the Claim: The lawsuit is based on the principle that “every fault which causes harm to another obliges the one who committed it to provide compensation.”
  • Scope of Compensation: Compensation includes direct material losses (such as the loss of current clients or future contracts) and moral damages (such as harm to the company’s commercial reputation).

Right of Recourse: The company has the right to file an independent civil lawsuit to claim potentially substantial financial compensation, and Kuwaiti judicial precedents confirm the success of such lawsuits.

Second Axis: Rules and Procedures for Maintaining Employee Compliance

To prevent the recurrence of such incidents, the company must adopt an integrated protection strategy that combines contractual fortification with internal procedural oversight.

1. Contractual Rules (Fortification through the Contract)

The employment contract is the first line of defense and must include deterrent and legally sound clauses:

• • Confidentiality Clause: This must be comprehensive, as is the case in your current contract, defining confidential information broadly so as not to be limited to specific categories, explicitly prohibiting acts such as copying, commercial exploitation, and personal use, and clearly stating that the confidentiality obligation extends beyond the termination of the employment relationship.
  • Restrictive Covenants Clause: This clause, present in your contract as number (14), is a vital tool to prevent the leakage of employees to competitors. It must clearly include:
    • Non-Competition Clause: Prohibits the employee from working for any direct competitor for a specified period (12 months in your contract) and within a specific geographical area (the GCC countries in your contract).
    • Non-Solicitation of Clients and Employees Clause: Prohibits the former employee from contacting the company’s clients or employees with the intent of enticing them to leave the company.
  • Intellectual Property Clause: It must be emphasized that all innovations and works developed by the employee during their employment are the exclusive property of the company, which prevents them from exploiting such works after their departure.
  • Customized and Updated Confidentiality Declarations: As an additional preventive measure, we recommend implementing a system of “Confidentiality Declarations.” This is a separate document or an addendum to the contract signed by the employee, which includes a specific list of the confidential and important information, data, and documents they have access to by virtue of their position (e.g., list of major clients, details of strategic deals, specific software codes). The purpose of this procedure is to eliminate any future ambiguity about the nature of the information, so that the employee cannot claim they were unaware that this specific information was considered confidential or important. This declaration must be updated periodically whenever the employee is promoted, moves to a new department, or gains access to new sensitive information.

2. Procedural and Internal Rules (Fortification through Policies)

• • Information Classification and Security Policy: Establish a clear internal policy that classifies data (public, internal, confidential), defines how to handle each category, and requires employees to mark sensitive documents with a “Confidential” stamp.
  • Limited Access Privileges: Apply the “need-to-know” principle, whereby an employee can only access information necessary to perform their duties, through specific permissions on electronic systems.
  • Periodic Training and Awareness: Conduct regular workshops to educate employees on the importance of information confidentiality, explain their legal and contractual obligations, and clarify the severe consequences of leaks.
  • Exit Process: Upon the resignation of any employee, an exit interview must be conducted in which they are reminded in writing of their ongoing confidentiality and non-competition obligations after leaving the company, and they must sign an acknowledgment of returning all company property (devices, documents) in accordance with Clause 19 of the contract.

Third Axis: Legal Caveats and Liabilities

When dealing with a leak incident, there are caveats and liabilities that the company must be aware of to avoid any adverse legal consequences.

1. Employee’s Liabilities (Consequences of Leaking)

• • Labor Liability: Immediate dismissal without any end-of-service benefits.
  • Criminal Liability: Judicial prosecution on charges of breach of trust, which may lead to imprisonment and a fine.
  • Civil Liability: Being judicially ordered to pay substantial financial compensation to the company to redress the harm.
  • Professional Liability: Severe damage to their professional reputation, which hinders future employment opportunities.

2. Caveats Facing the Company (Risks to be Managed)

• • Burden of Proof and Defining the Nature of Information: The company bears the responsibility of proving the leak incident conclusively and, more importantly, proving that the employee knew with certainty that the leaked information was “confidential” or “important.” Here, the importance of the “Updated Confidentiality Declarations” we recommended becomes apparent. The employee’s signature on a document that explicitly identifies this information closes the door to any argument or defense on their part that they were unaware of its confidential nature, thereby significantly fortifying the company’s legal position.
  • Risk of an Unfair Dismissal Lawsuit: If the company does not follow proper legal procedures in the investigation and dismissal (such as not giving the employee an opportunity to defend themselves), the employee may file a claim for “unfair dismissal,” which could cost the company financial compensation. For this reason, the previously proposed action plan (general notice, covert investigation, then formal investigation) ensures the integrity of the procedures.
  • Enforceability of Non-Competition Clauses: Despite their presence in the contract, courts may examine the reasonableness of non-competition clauses. If the duration (12 months) or the geographical scope (all GCC countries) is deemed excessive in a way that prevents the employee from earning a livelihood, the court may rule to reduce them or not enforce them. Therefore, these conditions must be proportionate to the employee’s position and the nature of the information they possess.
  • Reputational Damage from Public Litigation: Public litigation may harm the company’s reputation, even if its position is strong. A balance must be struck between the right to litigate and the potential impact on the company’s market image.

Conclusion and Recommendations

The company possesses a strong and multi-faceted legal right of recourse against the employee who caused the leak of its information, through labor, criminal, and civil tracks. To fortify the company in the future, we recommend the periodic review of contractual clauses (confidentiality, non-competition) and the implementation of strict internal policies for information security, along with adopting the mechanism of “Updated Confidentiality Declarations” as a decisive preventive tool.

As for the current situation, scrupulously following the proposed action plan, with a focus on proper documentation of evidence and adherence to legal procedures in the investigation, is the primary guarantee for the company’s success in holding the responsible party accountable, redressing the damage, and deterring any similar future attempts.