Keep trade secrets secret

Please note, that this is a translation of the original article in Finnish. If you wish to check your specific situation, please contact TEK's lawyers.

The Finnish Employment Contracts Act prohibits employees from unlawfully using or sharing their employer’s trade secrets while their employment contract is in effect. If an employee has obtained the information unlawfully, the prohibition also applies after the end of their employment relationship.

Trade secrets are also protected under the Criminal Code of Finland. Unlawfully revealing or exploiting a trade secret may constitute a criminal offence, if it happens within two years after the end of an employment relationship.

The provisions of the Employment Contracts Act and the Criminal Code apply even if nothing is mentioned about the confidentiality of trade secrets in the employment contract. All employees, regardless of what is and is not stated in their contract, have an obligation to protect the confidentiality of their employer’s trade secrets while on their payroll and to not use such confidential information to their own advantage or to damage the employer for two years after the end of the employment relationship. Breaking the rules can render employees or former employees liable for damages and, if the act counts as a criminal offence, land them in prison for up to two years.

Non-disclosure agreements bring additional obligations for the employee

Non-disclosure agreements are a way for employers to extend the temporal scope of their employees’ secrecy obligations and to impose a contractual penalty for breaches instead of claiming damages. Contractual penalties are better for employers, as the penalty clause can be triggered simply by demonstrating that a breach of contract has taken place. There is no need to prove that the breach actually caused the employer harm.

Employers also do not need a weighty reason to insist that their employees sign a non-disclosure agreement, and the amount of the contractual penalty payable in the event of a breach is not capped by law. The Supreme Court of Finland ruled in case KKO:2022:16 that employees can be ordered to pay separate contractual penalties for breaching a non-competition clause and a non-disclosure clause at the same time. The ruling was important in clarifying the legal position.

Leveraging professional competence or exploiting trade secrets?

Regardless of any non-disclosure obligations, employees always have the right to leverage their professional competence. Professional competence means the kinds of skills and problem-solving abilities that can be learned through work. 

Trade secrets, on the other hand, refer to knowledge that is not generally available or easily accessible to other operators in the industry and is therefore of economic value to the organisation that developed it. Trade secrets typically include, for example, previously unpublished source code, the technology featured in products and client-specific pricing. 

Drawing the line between your own professional competence and your employer’s trade secrets can be difficult, especially in technology and product development roles. The Supreme Court addressed this balancing act in its ruling in case KKO:1989:39, which involved an engineer who had worked as the principal designer of packaging machinery.

The engineer had begun to design a packaging machine for their new employer while still serving their notice with their previous employer. The original employer accused the engineer of having exploited their trade secrets in designing the new machine. The evidence presented in the case showed that certain mechanisms of the new machine – such as how the vertical and horizontal sealing systems operated – resembled the solutions used by the engineer’s former employer. However, there were no structurally identical parts in the two machines.

The Supreme Court concluded that the engineer had essentially leveraged the experience and professional competence that they had built up while on the payroll of the original employer. Although they had taken advantage of what they remembered about designing the original employer’s packaging machinery, they had not exploited or divulged information about any unique features of that machinery that could have been classified as the original employer’s trade secrets. There was no evidence of any details having been copied.

The ruling illustrates the fine line between trade secrets and professional competence. Employees do not lose their right to leverage the know-how that they have built up during their employment history when they go to work for a new employer. Exploiting or divulging previous employers’ confidential technology, documents or other specifiable trade secrets, on the other hand, is prohibited.

Controversies surrounding indefinite non-disclosure agreements

TEK’s members are often asked to sign non-disclosure agreements that are effective indefinitely. These kinds of agreements can turn out to be unlawful, however.

The Eastern Finland Court of Appeal found in its ruling in case S 18/384 that the limit for what can be considered reasonable when it comes to the time frame of non-disclosure agreements is two years. The case in question involved a non-disclosure agreement that stipulated a time frame of four years from the end of an employee’s contract, but the court ruled that the agreement had only been lawful for the first two years after the end of the employment relationship.

Legal scholars have criticised the ruling. The Court of Appeal had based its ruling on the two-year period mentioned in the Criminal Code, but the criminal law provisions are only concerned with the period during which breaches of confidentiality constitute a criminal offence. According to the government proposal that led to the enactment of the provisions in question, there is nothing stopping employers from asking their employees to sign non-disclosure agreements that remain in effect beyond the period of criminal liability. 

How long is ‘reasonable’ is still a mystery

The Supreme Court is yet to comment on what should be considered a reasonable length for a non-disclosure agreement from employees’ perspective.

Until the Supreme Court sets a precedent on a reasonable time frame, it seems safe to assume that non-disclosure agreements that survive the end of an employment relationship by two years are lawful and reasonable.

The lawfulness and reasonableness of non-disclosure agreements with longer time frames need to be assessed on a case-by-case basis.