Protecting Business Secrets: Breach of Confidentiality and Non-Compete Clauses in Malaysia
In Malaysia’s competitive business environment, protecting trade secrets, client data, and proprietary business information is no longer optional — it is essential. Employers and business owners invest significant time, resources, and intellectual effort into building their company’s competitive edge. However, when employees misuse confidential information or violate non-compete obligations, the resulting damage can be severe and often irreparable.
At JY Ko Advocates & Solicitors, we regularly advise and represent employers in cases involving breach of confidentiality and non-compete clauses — ensuring that our clients’ business interests remain protected through effective legal strategies and enforceable agreements.
1. Understanding Confidentiality Obligations in Employment
1.1 What Constitutes Confidential Information
Confidential information encompasses any data or material not generally available to the public that provides a competitive advantage to a business. Examples include:
- Customer databases and pricing lists
- Marketing strategies and product development plans
- Software codes, designs, or prototypes
- Financial records and internal projections
- Business methodologies and know-how
Even without a written contract, an employee owes an implied duty of fidelity and confidentiality under Malaysian common law. This means that employees must not use or disclose their employer’s confidential information without permission, even after employment ends.
1.2 Contractual Confidentiality Clauses
Most employment contracts now include express confidentiality clauses, which strengthen an employer’s right to take legal action in the event of a breach.
A well-drafted confidentiality clause should:
- Clearly define what constitutes “confidential information”;
- State the duration of confidentiality obligations (e.g. during and after employment);
- Specify permissible disclosures (e.g. for legal or compliance purposes); and
- Outline remedies and consequences in the event of breach.
At JY Ko Advocates & Solicitors, we help employers draft confidentiality clauses that are both comprehensive and enforceable, aligned with Malaysian legal principles and judicial interpretations.
2. Breach of Confidentiality: Legal Remedies for Employers
2.1 How a Breach Occurs
A breach of confidentiality typically arises when an employee or ex-employee:
- Shares trade secrets with a competitor;
- Uses confidential data to start a rival business;
- Leaks sensitive business information to third parties; or
- Uploads internal data onto public or unauthorised digital platforms.
Employers must act swiftly when such breaches occur. Delay can weaken the claim and reduce the court’s willingness to grant injunctive relief.
2.2 Civil Remedies Available
Under Malaysian law, an employer may seek the following remedies:
(a) Injunction
A court injunction prevents the wrongdoer from continuing to disclose or use confidential information. In urgent cases, interim injunctions or Mareva injunctions (to freeze assets) may be sought to preserve evidence or prevent further damage.
(b) Damages or Equitable Compensation
The employer may claim damages for actual financial loss, or equitable compensation where damages are difficult to quantify.
(c) Account of Profits
If the ex-employee or competitor profited from the misuse of confidential information, the employer can claim an account of profits, compelling them to surrender those gains.
(d) Delivery Up and Destruction Orders
The court can order the return or destruction of all confidential documents or data obtained in breach.
2.3 Evidentiary Challenges
While Malaysian courts recognise the importance of protecting confidential information, the burden of proof lies on the employer. Employers must show that:
- The information is truly confidential;
- The employee was aware of its confidentiality; and
- The employee used or disclosed it without consent.
To strengthen your case, JY Ko Advocates & Solicitors assists clients in collecting and preserving digital evidence, drafting affidavits, and applying for urgent injunctions when confidentiality breaches are discovered.
3. Non-Compete Clauses: Scope and Enforceability
3.1 What is a Non-Compete Clause?
A non-compete clause (also called a restrictive covenant) restricts an employee from joining a competing business, soliciting clients, or starting a similar business after leaving employment.
Such clauses are common in senior management, sales, or technical positions where employees have access to strategic knowledge, trade secrets, or client relationships.
3.2 The Legal Framework: Section 28 of the Contracts Act 1950
Under Section 28 of the Contracts Act 1950, any agreement that restrains a person from exercising a lawful profession, trade, or business is void, except in limited circumstances. This makes non-compete clauses presumptively unenforceable in Malaysia unless they fall within recognised exceptions.
Recognised Exceptions under Section 28
- Sale of goodwill — When a business is sold, the seller may agree not to compete with the buyer.
- Partnership agreements — Certain restrictions are allowed among partners or ex-partners under the Partnership Act 1961.
Outside these exceptions, post-employment non-compete clauses are generally void — but not all restrictive clauses are treated equally.
3.3 The Distinction Between Non-Compete and Confidentiality
While non-compete clauses are often void, confidentiality clauses remain valid. Malaysian courts draw a distinction between protecting legitimate business interests and imposing unreasonable restraints on trade.
A clause that prevents the misuse of confidential information or solicitation of clients may still be enforceable, provided it is reasonable and necessary to protect the employer’s business.
At JY Ko Advocates & Solicitors, we help employers structure their employment contracts to maximise enforceability — protecting proprietary interests without violating Section 28.
4. Crafting Enforceable Employment Restrictive Clauses
4.1 Key Drafting Principles
To enhance enforceability, employment contracts should include the following:
- Precise Definition of Confidential Information – Avoid vague terms; specify categories such as “client data”, “technical processes”, or “pricing models”.
- Non-Solicitation Clause – Prevents ex-employees from poaching clients or employees rather than restricting trade outright.
- Garden Leave Clause – Allows employers to restrict an employee’s activities during the notice period while still paying salary.
- Post-Termination Restrictions with Reasonable Scope – Limit restrictions by time, geography, and industry to make them appear reasonable and justifiable.
Example:
“The Employee shall not, for a period of six (6) months after termination, directly or indirectly solicit any client with whom the Employee had business dealings during the twelve (12) months prior to termination.”
Courts are more likely to uphold a limited non-solicitation clause than an overly broad non-compete clause.
4.2 Judicial Trends in Malaysia
Malaysian courts take a strict approach toward restraint clauses. However, they do recognise legitimate protection of trade secrets, especially where the employee’s role gave them significant access to sensitive information.
In Dynacast (Melaka) Sdn Bhd v Vision Cast Sdn Bhd [1999], the court observed that while non-compete clauses are void under Section 28, confidentiality obligations survive termination and may be enforced through injunctions.
In Sinegy Technologies (M) Sdn Bhd v Sitt Tatt Industrial Marketing Sdn Bhd [2002], the High Court granted an injunction against former employees who misused trade secrets, reaffirming that the duty of confidentiality extends beyond the contract of employment.
5. Practical Steps for Employers to Protect Confidential Information
5.1 Implement Clear Policies
Employers should adopt comprehensive confidentiality and data protection policies, communicated clearly to all employees at the point of onboarding and during employment.
These policies should define what constitutes confidential information and outline the consequences of disclosure.
JY Ko Advocates & Solicitors often assists corporate clients in developing and implementing such internal policies, ensuring compliance with both employment law and data protection law in Malaysia.
5.2 Restrict Access to Sensitive Data
Not all employees require access to the same information. Employers should apply the “need-to-know” principle, restricting access based on role and necessity.
This can include:
- Secure digital access controls;
- Password protection and encryption;
- Employee access logs and audit trails.
5.3 Use Non-Disclosure Agreements (NDAs)
When dealing with external vendors, consultants, or business partners, NDAs are essential to extend confidentiality obligations beyond the employment context.
A well-drafted NDA drafted by JY Ko Advocates & Solicitors should include:
- Definition of confidential information;
- Purpose of disclosure;
- Duration of the obligation;
- Remedies in case of breach.
5.4 Conduct Exit Interviews and Declarations
Before an employee departs, employers should conduct an exit interview to remind them of ongoing confidentiality obligations. Requiring a written declaration reaffirming non-disclosure helps reinforce enforceability in potential disputes.
6. Legal Action for Breach: How JY Ko Advocates & Solicitors Can Help
When a breach occurs, swift and decisive action is crucial. The legal team at JY Ko Advocates & Solicitors has successfully represented employers in both High Court and Industrial Court matters involving breach of confidentiality and misuse of trade secrets.
Our Approach:
- Immediate Evidence Preservation – We assist clients in securing digital evidence, retrieving email trails, and conducting internal investigations.
- Injunction Applications – We act urgently to obtain interim injunctions preventing further misuse or disclosure.
- Civil and Commercial Claims – We file claims for damages, breach of contract, and equitable remedies.
- Negotiated Settlements – Where appropriate, we negotiate undertakings or settlements to minimise reputational harm and business interruption.
Our legal strategy combines aggressive protection of client interests with practical commercial outcomes, ensuring employers maintain control over sensitive business information.
7. Common Employer Mistakes in Managing Confidentiality Breaches
- Delaying Legal Action – Delay can result in irreversible disclosure and loss of evidence.
- Overly Broad Non-Compete Clauses – Courts strike down clauses that are unreasonable in duration or geographic scope.
- Failing to Define Confidential Information – Vague terms weaken enforceability.
- Lack of Employee Training – Policies are ineffective if employees are unaware of them.
- Ignoring Digital Security Measures – Technical safeguards are essential complements to legal agreements.
8. How to Strengthen Your Legal Position as an Employer
Employers should adopt a proactive stance rather than waiting for breaches to occur. The following measures are strongly recommended:
- Conduct regular contract reviews with your legal counsel.
- Implement employee confidentiality training and digital data policies.
- Ensure exit protocols are consistently enforced.
- Engage a legal team early when signs of a breach appear.
At JY Ko Advocates & Solicitors, we provide end-to-end advisory services — from drafting enforceable employment contracts and NDAs to representing clients in complex breach-of-confidentiality litigation.
9. Case Studies: Real-World Implications
Case Study 1: Former Employee Misusing Client Database
A logistics company discovered that a former sales manager had copied its client list before resigning and used it to solicit clients for a rival firm.
Through our prompt intervention, JY Ko Advocates & Solicitors obtained an interim injunction restraining the ex-employee from further solicitation and compelled the rival company to delete all misused data. The case was later settled with damages and a public apology.
Case Study 2: Non-Disclosure Violations in Technology Start-Up
A start-up engaged an independent contractor who later disclosed its prototype designs to a competitor. Our firm successfully pursued legal action based on breach of confidentiality and breach of fiduciary duty, securing a settlement that included the destruction of all infringing materials and compensation for loss of opportunity.
10. Frequently Asked Questions (FAQs)
Q1: Are non-compete clauses enforceable in Malaysia?
Generally, non-compete clauses are void under Section 28 of the Contracts Act 1950. However, limited non-solicitation or confidentiality clauses may still be enforceable if they protect legitimate business interests.
Q2: Can an employer sue a former employee for disclosing confidential information?
Yes. Employers can seek injunctions, damages, or equitable remedies to prevent or address misuse of confidential information.
Q3: How can employers protect information shared with external vendors?
Always use a Non-Disclosure Agreement (NDA) that clearly defines confidentiality obligations and legal consequences for breach.
Q4: Can confidentiality obligations extend after employment ends?
Yes. The duty of confidentiality continues post-employment, especially concerning trade secrets or proprietary data.
Q5: How can JY Ko Advocates & Solicitors help my company?
Our firm provides comprehensive legal solutions including contract drafting, dispute resolution, and urgent injunction applications for confidentiality and intellectual property breaches.
11. Conclusion: Protecting Your Competitive Edge
Confidentiality and non-compete clauses are vital tools for safeguarding your company’s intellectual assets and client relationships. While Malaysian law limits the scope of post-employment restraints, employers can still achieve robust protection through carefully drafted contracts, sound policies, and proactive legal action.
JY Ko Advocates & Solicitors stands ready to help employers defend their business interests with precision and authority. Our team’s expertise in employment law, commercial litigation, and injunction proceedings ensures that your company’s sensitive information remains protected — and your competitive advantage preserved.
Act Now!
If your company suspects a breach of confidentiality, or if you wish to review or strengthen your employment contracts, contact JY Ko Advocates & Solicitors today.
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Disclaimer: The above proposition is subject to actual facts and circumstances and shall never be referred as the actual law without seeking legal advice. Consult us for more information!