Employees with detailed information of their employer's know-how often leave the business in order to start a competing business or join an existing competing business. Whether an employee can make use of previously attained know-how, knowledge and skills in their new position is largely governed by the Trade Secrets Act, as well as the particular circumstances at hand and the employee's actions.
Unlike in other countries, the starting point in Swedish law is that a former employee is, without limitations, allowed to use the experience, skills and knowledge that they acquired during their employment, even if this would include trade secrets. However, this right can be limited pursuant to the Trade Secrets Act. The Labour Court recently delivered a ruling in a case concerning the calculation of damages on breaches of the act.(1)
Until the Labour Court's(2) January 2021 ruling, damages for breaches of the Trade Secrets Act have been divided into two separate categories: economic (eg, to cover economic loss) and general (eg, to cover other concerns) damages.
An important divide between general and economic damages in the system implemented by the case law is that, while the circumstances that form the basis for a claim regarding economic damages must be evidenced by the claiming party, circumstances and argumentation relating to general damages do not.
The case concerned an employee who left a company and subsequently – after the termination of the employment – co-founded a competing company. The employee retained trade secret information and documents from his previous employer and disclosed the information to the new company, using the information in his new position. The court found that the Trade Secrets Act had been violated and that damages were to be awarded.
The former employer held that there had also been a violation of the Act on Copyright in Literary and Artistic Works (Copyright Act) as the employee had copied and reproduced information covered by the act and so it was also entitled to damages under this legislation.
When determining the principles for calculating damages, the court noted that both the Trade Secrets Act – which has been in force since 2018 when it replaced the old Trade Secrets Act – and the Copyright Act are based on EU directives (EU Directives 2016/943/EU and 2004/48/EC, respectively) and that the relevant provisions of those directives are similar. Therefore, and because both acts were to be applied to the same circumstances, the court held that damages under the two acts should be calculated using the same method. Since the separation between general and economic damages is not made in the same manner regarding damages calculated under the Copyright Act, the Labour Court concluded that it would dismiss the principle of separation between general and economic damages that had since long been established in previous case law. Further, the Labour Court held that the need for the defendant to be able to identify and defend against the different kinds of claim – which was the reason previously given for the separation – could instead be met by dismissing the part or parts of a claim where the claimant had not provided sufficient grounds for the calculation of damages or, if need be, evidence supporting the calculation.
Thus, it appears that the Labour Court departed from the principles set out in its earlier case law and implemented a new method for calculating damages in trade secret employment cases. The reason for this new method is to conform the act of calculating damages under the Trade Secrets Act with calculating damages under the Copyright Act, even though the court has explicitly made clear that the new method it is not intended to lead to any different results than if the old method were to be used. Apart from making it considerably easier for both employers and employees to present arguments regarding the calculation of damages in cases where both trade secret and copyright law are to be applied, it remains to be seen what the impact of the change will be on future trade secret employment cases.
Endnotes
(1) Case AD 2021 Number 1, decided on 13 January 2021.
(2) The Labour Court is the second and last-instance court regarding disputes between employers and employees (including former employees) and thus the main court of precedence in Sweden on the applicability on this legislation.
