What to do when an employee uses confidential company information to conduct a second job

Acceptability of side business

Since employees are obligated to devote themselves to their duties, it is likely that many employment regulations prohibit employees from engaging in side jobs during company working hours. However, in principle, it is not possible to regulate what an employee does outside of company working hours.

Competitive activity issues

On the other hand, there are cases where an employee of a company engages in activities that overlap with the company’s business as a side business. For example, an employee who worked as a sales representative for a jewelry sales company may set up a website to sell jewelry on the Internet and sell jewelry as his or her own business. In a more malicious case, a sales representative of a real estate brokerage company may divert information obtained by the company to a rival company and receive kickbacks or entertainment. Since it is clear that such conduct is detrimental to the interests of the company, it usually falls under the disciplinary grounds of the employment regulations, and disciplinary action should be taken according to the maliciousness of the conduct.

Collection of information for disciplinary action (digital forensics)

When an employee is disciplined for violating employment regulations for using company information to engage in a competing business activity and causing damage to the company, it is necessary to collect sufficient data to withstand any claims or legal action from the employee in question. Digital forensics is an important method of gathering information, and the first step is to confirm what kind of communication was conducted on the employee’s computer. Since the computer is loaned by the company, the company can check its contents. It is possible that the employee may have deleted past e-mails, etc., so it is necessary to ask a professional company to restore the data. In addition to the computer, other materials may be found on the Internet website or in the company’s personal belongings that reveal the contents of the employee’s side job. Interviews with employees who are close to the employee in question may also provide an opportunity to gather information.

Hearing from the individual

When gathering information, it is most important to hear from the person in question. However, there are several important points to keep in mind when interviewing the individual.

Gather sufficient information in advance

It is important to gather sufficient information before conducting a hearing with the person in question. It is necessary to check the e-mail on the person’s computer to the extent that it does not infringe on his/her privacy, interview relevant persons, and gather information from the Internet and other sources. It is also necessary to prepare a written questionnaire in advance of the hearing and verify it several times to make sure that the matters to be asked are adequately covered and that the content is not such that it could be said that undue pressure was applied. The success or failure of a hearing lies in the advance preparation.

Ensuring objectivity and avoiding power harassment

If a company supervisor directly conducts the hearing, there is a possibility that later, due to undue pressure from the supervisor, the employee may claim that he/she was forced to admit to something that was not true or that there was power harassment by the supervisor. In recent years, there is also a risk of leaks to the Labor Standards Inspection Office or the media. It is important to be aware that employees are likely to be recorded on hidden tapes. Emotional questions should be avoided. In addition, if only one person responds, the situation will not be clear at the time, so it is necessary to respond with more than one person in order to be as objective as possible.

Confirmation in writing

The results of the hearing should be summarized in writing, and objective evidence should be provided by having the employee in question sign the document. The facts should be described in as much detail as possible, paying attention to the 5W1H. Considering the effectiveness as court documents at a later date, it is preferable to have a lawyer check the contents of the document if you can obtain the cooperation of a lawyer.

To avoid being called a threat or blackmail

In the written summary of the hearing results, it may be confirmed that there was a violation of the employment regulations or employment contract, and that the company will compensate the employee for any damages caused by the violation. However, it is necessary to take into consideration the possibility that the company may later be sued by the police for extortion or threats. When stipulating the obligation to compensate for damages, it is necessary to ensure that the compensation is voluntary and that the amount of the compensation is commensurate with the violation.

Third Party Committee

It is also effective to set up a third-party committee when hearing from employees and have the third-party committee conduct hearings, prepare a report, and issue a report on the findings of fact, legal issues, and measures to address them. The objectivity of the third-party committee will be ensured. Recently, the impartiality and objectivity of third-party committees have sometimes been questioned, so it is necessary to devise methods for selecting committee members and conducting hearings to ensure that impartiality and objectivity are maintained. Even if a formal third-party committee is not formed, the objectivity of the report can be ensured by including an outside attorney or certified public accountant as a member of the investigative committee.

Disciplinary Action on the Basis of Competition

Even if the employee performs a side job during or after company working hours, if the employee’s conduct is detrimental to the interests of the company, as described above, the employee will be subject to disciplinary action in violation of the employment regulations. When taking disciplinary action, it is necessary to ensure that there are no errors in both substance and procedure. First, with regard to substance,

• (1) Whether or not the employee has really committed such an act
• (2) Is there any evidence to support that he/she did so?
• (3) Which article of the employment regulations was violated by the conduct
• (4) Whether the violation is disproportionate to the punishment.

In most cases, the employment regulations will have provisions regarding the procedures to be taken, so it is necessary to follow those provisions. For example, (1) a disciplinary committee meeting is held, (2) the employee is given an opportunity to explain his/her actions, (3) a majority vote is taken by the disciplinary committee, and (4) the board of directors or the representative director decides on the punishment in reference to the results of the meeting. If the disciplinary procedure is not fully regulated, it is necessary to establish such regulations.

Written Notice of Disciplinary Action

The Notice of Disciplinary Action must contain specific details of the misconduct (reasons for discipline). A Notice of Disciplinary Action without a statement of reasons for disciplinary action may be deemed invalid. In addition, reasons not stated in the Notice of Disciplinary Action may not be added to the reasons for disciplinary action in future in the legal action.

Kuribayashi Sogo Law Office’s Support Services

Kuribayashi Sogo Law Office will investigate the facts, advise on the appropriateness of the disposition, and advise on the proper procedures. We may also organize third-party committees and act as a member of the investigative committee.