Companies who are the victims of trade secret thefts by their employees in Hungary are protected on more levels: in addition to relying on the Business Secret Act, they can invoke the Labour Code, as well.Less clear is to which court should employers turn to in case they decide to sue their former employee and the competitor, employing the latter. Is the commercial court or the labour court the right forum? We analyse the question in the light of a recent judgment of the Hungarian Supreme Court.
Facts
The claimant complained that its ex-employee and its competitor as co-defendants induced certain employees of the claimant to terminate their employment and work for the claimant’s competitor. To this end, the claimant’s ex-employee disclosed a set of data to the claimant’s competitor in relation to the targeted employees such as their salary and other working conditions.
The claimant filed a claim requesting the commercial court to establish the infringement of trade secrets and award damages. Claimant relied on the Business Secret Act as legal basis.
The Defendants requested the commercial court to terminate the procedure and refer the claimant’s action to the competent labour court since the claimant’s claim against its ex-employee is stemming from the former employment relationship between them.
Lower court decisions
The first and second instance courts found that the dispute does not fall within the labour court’s competence given that the claimant asserted exclusively its rights protected by the Business Secret Act and the subject-matter of the action is not the employment relationship between the claimant and its ex-employee.
Thus, both courts examined the claimant’s action in its merits. While the first instance court established the trade secret infringement, the second instance court dismissed the claimant’s action as in its view the information disclosed between the defendants did not constitute a trade secret in the sense of the Business Secret Act.
Supreme Court
Surprisingly, in the judicial review procedure, the Supreme Court established that the labour court is competent to hear the case and terminated the procedure.
According to the Supreme Court, given that the Business Secret Act shall be interpreted in the employment relationship, in case of a trade secret infringement by an employee, the Business Secret Act and the Labour Code shall be applied together.
A contrary interpretation could lead to abuses by employers: they could argue that they solely base their trade secret infringement claims on the Business Secret Act and exempt themselves from the special rules of labour litigation, thereby depriving employees of special procedural guarantees.
Based on the Supreme Court’s decision when it comes to a trade secret infringement, the claimant as an employer cannot have the liberty to sue its ex-employee in front of the commercial court solely on the basis of the Business Secret Act but shall file its claim to the labour court invoking the provisions of the Labour Code as well. Moreover, if the employer wishes to bring an action against the company to whom its employee disclosed the trade secrets as a co-defendant, the labour court will be competent, too.
While it is understandable that the Supreme Court wanted to protect employees against being sued before the general commercial court based on the Business Secret Act, it is not sure that it is a good direction to deprive employers from their private autonomy and force them to sue their ex-employees on the basis of the Labour Code.
Nevertheless, given that the decisions of the Supreme Court being a precedent shall be followed by lower courts, for employers finding themselves in a similar situation in Hungary it is advised to sue their ex-employees in front of the labour court invoking the provisions of both the Labour Code and the Business Secret Act.
By Richard Schmidt, Managing Partner and Anita Vereb, Attorney-at-law, SmartLegal Schmidt & Partners