Corporate confidentiality: Employee duties and legal consequences

Protecting business confidentiality is essential to safeguarding a company’s know-how and strategic information. This article examines employees’ confidentiality obligations, the continuation of such duties after the termination of employment, and the legal tools and sanctions available under Italian law.

Are employees required to maintain corporate confidentiality?

Under Article 2105 of the Italian Civil Code, employees are subject to a duty of loyalty, which includes a prohibition against engaging in business in competition with their employer and disclosing confidential information regarding the organization and production methods of the company. This duty is crucial to the protection of a company’s know-how and strategic information.

Pursuant to Article 2105, the employee must:

• Refrain from conducting business—on their own behalf or on behalf of third parties—that competes with the employer;
• Avoid disclosing information related to the organization and production methods of the company, or using such information in a way that could cause harm to the employer.

Italian courts have interpreted the confidentiality obligation broadly and strictly. Not only is the disclosure of confidential information prohibited, but so is any conduct that could potentially harm the company. For example, simply duplicating corporate data onto personal devices may constitute a violation—even in the absence of actual disclosure to third parties.

A notable example is the Italian Supreme Court (Civil Division, Employment Section), Judgment No. 25147 of October 24, 2017. In that case, an employee was dismissed for transferring a significant amount of corporate data onto a personal USB drive, which was later lost and subsequently recovered on company premises. Although the data had not been disclosed, the Court found that such conduct violated the employee’s duty of loyalty under Article 2105 of the Italian Civil Code, thereby justifying termination for just cause.

Does the duty of confidentiality extend beyond termination of employment?

The duty of confidentiality survives the termination of the employment relationship. According to Italian Supreme Court (Civil Division, Section I), Judgment No. 18772 of July 12, 2019, a former employee may not use confidential information obtained during previous employment to benefit themselves or a new employer. Doing so would constitute unfair competition and a breach of professional fairness. (see: “When does hiring competitors’ employees constitute unlawful conduct?” )

In that decision, the Court emphasized that the acquisition and use of confidential information through technological means, such as CD-ROMs or USB drives, constitutes unlawful conduct. This principle applies both during the employment relationship and after its termination. If transferring company data to personal devices is prohibited during employment, it is even more serious to retain such information after the relationship has ended. Such behavior compromises confidentiality and may cause significant damage to the former employer.

In conclusion, the duty of confidentiality does not expire upon termination. Former employees must refrain from disclosing or using corporate confidential information, including know-how, even if such information was retained mentally or without formal documentation. (See: “When former employees misappropriate known-how: the DeLorean case”)

What legal tools are available to protect trade secrets?

The protection of trade secrets is critical to ensuring the competitiveness and security of a company’s strategic information. Italian law provides both legal and practical tools to safeguard this information.

As mentioned above, Article 2105 of the Italian Civil Code imposes a duty of loyalty on employees, which includes prohibitions against disclosing confidential information and competing with the employer.

Additionally, employers may enter into non-competition agreements under Article 2125 of the Italian Civil Code, which restrict employees from working for competitors or starting competing businesses for a defined period after termination. These agreements must be fairly compensated and must comply with specific temporal and geographic limits. (See more: “Non-competition agreement: requirements, critical issues and consequences”)

Moreover, the Italian Industrial Property Code (Italian Legislative Decree No. 30 of February 10, 2005) provides legal protection for trade secrets and business know-how.(See more: “What is know-how and how can we protect it?”).

To be protected under the law, corporate information must be secret, have economic value, and be subject to reasonable measures to keep it confidential (Article 98 of Italian Legislative Decree No. 30 of February 10, 2005). It is essential to implement internal security policies, such as the use of non-disclosure agreements (NDAs) with employees and contractors, as well as technical measures to safeguard sensitive data (for further reading: “What is the purpose of a non-disclosure agreement?”).

The implementation of technological protection measures is equally essential to safeguarding trade secrets. These measures may include:

• Data encryption: To protect sensitive information from unauthorized access.
• Access control: To restrict access to confidential information exclusively to authorized personnel.
• Monitoring and auditing: To use monitoring software to detect and prevent potential data breaches.
• Employee training: To raise awareness and educate employees on the importance of confidentiality and corporate security practices.

In short, protecting trade secrets requires a comprehensive approach that combines legal instruments, technical safeguards, and organizational practices. These strategies help secure strategic information, mitigate the risk of unfair competition, and prevent the loss of know-how.

What are the consequences for employees who breach confidentiality?

Breaching confidentiality obligations can lead to serious legal and financial consequences for employees.

As discussed, Article 2105 of the Italian Civil Code imposes a duty of loyalty that includes an obligation to protect confidential information. A breach of this duty may constitute serious contractual misconduct (material breach), justifying termination for just cause. This was confirmed in Judgment No. 25147/2017 of the Italian Supreme Court, where an employee was lawfully dismissed for transferring company data onto a personal USB drive.

In addition, employees who unlawfully disclose confidential information may be held liable for damages caused to the employer (for further reading: “The case of the disloyal employee who steals confidential company information”).Under Article 2043 of the Italian Civil Code, anyone who causes unjust harm to another is required to provide compensation. Therefore, if the disclosure of confidential information results in economic loss for the company, the employee may be ordered to pay compensation, including: lost profits, remediation costs and any other financial damages incurred by the employer.

The disclosure of trade secrets may also trigger criminal liability. Article 623 of the Italian Criminal Code provides for penalties—including imprisonment and fines—for anyone who, by virtue of their position or employment, unlawfully discloses trade or industrial secrets. If an employee physically removes sensitive data or materials from the company, they may also be prosecuted for theft or misappropriation.

Ultimately, an employee’s breach of confidentiality obligations entails serious consequences, including termination for just cause, civil liability for damages, and potential criminal sanctions. These risks underscore the importance of strict compliance with confidentiality duties, both under the employment contract and applicable law.