Confidentiality in Employment Relationships: How Does It Work in El Salvador?
In labor relationships, workers are entitled to a series of powers and prerogatives that they may be enforced against their employer, better known as labor rights; however, just as they have rights, they also have obligations, and one of the most significant elements—which also constitutes one of the primary responsibilities and duties of workers—is maintaining the confidentiality of information owned by the company for which they work. In the day-to-day operations of companies, employees have access to and knowledge of privileged information that is used to obtain or maintain economic and/or competitive advantages over third parties and competitors. This information is highly valuable and, consequently, deserves legal protection to ensure its safety and preservation.In El Salvador, this duty of confidentiality is expressly provided in the Labor Code as an obligation of employees. Article 31 of that code states: "The obligations of employees are: to maintain strict confidentiality regarding trade secrets of which they become aware by virtue of their position and regarding administrative matters whose disclosure could cause harm to the company.”
The obligation of employees to maintain the confidentiality of company secrets is so important that a breach of this obligation constitutes grounds for termination of the employment contract without liability on the part of the employer, as Article 50 of the Labor Code states: "The employer may terminate the employment contract without incurring liability for the following reasons: 4) If the employee discloses company secrets or takes advantage of them; or if the employee discloses administrative matters of the company that may cause harm to the employer.” In addition, the employee is obligated to pay the employer the amount of damages caused by any breach of the employment contract (Article 52 of the Labor Code); such amount is prudently estimated by the competent labor judge, who, taking the circumstances into account, determines the manner in which the employee must pay it.
Similarly, the Intellectual Property Law recognizes the obligation by stipulating: "Any person who, by virtue of their work, employment, position, role, professional practice, or business relationship, has access to a trade or business secret regarding which they have been warned of its confidentiality must refrain from using it for their own commercial purposes or those of third parties, or from disclosing it without just cause and without the consent of the person holding such secret or its authorized user. Otherwise, they shall be liable for any damages caused.”
Furthermore, the aforementioned Intellectual Property Law establishes that if a person obtains industrial or commercial secrets by hiring an employee who is currently working or has previously worked for another person, or a professional, advisor, or consultant who provides or has provided services to another person, that person shall be jointly and severally liable with the party who provided the information for the payment of damages caused to said person; and shall also be liable for damages caused to another person who, by any unlawful means, obtains information that constitutes an industrial or trade secret—all of the foregoing without prejudice to any applicable criminal liability, as the Penal Code defines a crime relating to the disclosure or divulging of an industrial secret.
Nevertheless, it is important to note that, in El Salvador, labor case law concludes that, while it is true that workers obligations include safeguarding company secrets, this obligation is limited to the term of their employment contract—a provision confirmed by Article 52 of the Labor Code (cited above)—which clearly establishes that an award of damages shall be based on the employee’s breach of the employment contract resulting from a violation of the duty of confidentiality.
In other words, from a labor law perspective, for a breach of the duty of confidentiality by an employee to be considered to have occurred, the disclosure of the industrial or trade secret must take place while the employment contract is in effect; therefore, such a breach will directly constitute a breach of the employment contract.
However, what happens once the employment relationship ends? It is not uncommon for employees to sign confidentiality agreements—also known as "non-disclosure agreements”—to ensure the protection of confidential and privileged information; in which the term of such obligations remain in effect even after the employment relationship has ended, and in some cases, indefinitely.
First, it is important to note that confidentiality agreements are not expressly regulated by Salvadoran law, so their inclusion as clauses in employment contracts may be subject to review by the Ministry of Labor and Social Security when these contracts are registered or filed in accordance with the provisions of Article 18 of the Labor Code—which establishes the legal obligation for employers to register employment contracts within eight days of their execution.
In this regard, and according to labor case law, the confidentiality agreement or contract has its origins in common law; it is generally a contract entered into between two parties to share information and maintain its confidential or secret nature as part of a business or employment relationship. At this point, it is worth noting that such confidentiality agreements often include a non-compete clause; this non-compete agreement —also known as a non-competition agreement—, is intended to prevent the knowledge and information acquired by an employee, by virtue of the position held at the company, from giving a new employer an advantage when competing with the former employer.
However, although labor case law limits the duration of an employee’s obligation and duty of confidentiality to the term of the employment relationship—that is, to the duration and existence of the employment contract between the parties—this criterion is framed within the labor law perspective; but this does not mean that there is a lack of protection for employers and companies that have disclosed their trade or business secrets and confidential information to their employees by virtue of the positions they held, once those employees cease to work for them.
In this regard, there iscase law from the First Civil Chamber of the First Section of the Central District and the Second Civil Chamber of the First Section of the Central District that recognizes the independence between an employment contract and a confidentiality agreement, and, therefore, the possibility that a breach of such an agreement after the termination of the employment relationship may be heard in civil and commercial courts; since, in practice, there is often uncertainty as to whether such claims should be heard by a civil and commercial judge or a labor judge.
Thus, the First Civil Chamber of the First Section of the Central District, in a declaratory action for breach of contract identified under case number 160-63CM1-2015 that it is common for an employee to sign a confidentiality agreement at the time of hiring, identifying as some of its most common characteristics: a) the parties involved, b) the purpose of the agreement, c) the definition of confidential information, and d) the period during which confidentiality must be maintained after the employment relationship has ended; concluding that the signing of a confidentiality agreement implies a binding relationship—that is, the existence of a set of legal ties between the contracting parties that do not arise from the employment contract, and therefore, in the event of a breach, it is not this legal relationship that is violated, but rather a civil obligation arising from the confidentiality agreement; as a result, a claim for damages may be filed in civil and commercial courts, in accordance with the Code of Civil and Commercial Procedure.
Likewise, the Second Civil Chamber of the First Section of the Central Court recognized the difference between an employment contract and a confidentiality agreement, holding that, while it is true that a confidentiality agreement may be entered into as a result of a prior employment relationship between the parties, they are independent contracts, since the employment contract guarantees the rights and obligations of the employee and his or her employment relationship; and the confidentiality agreement ensures the protection of the employer’s industrial or commercial secrets, even after the employment relationship that gave rise to it has ended.
In the judgment issued by that Chamber in a declaratory action for breach of a confidentiality agreement following the termination of the employment relationship, case no. 63-3CM-13-A, it was determined that the applicable law in that case is the Code of Civil and Commercial Procedure, since the underlying document for the claim is the confidentiality agreement and not the employment contract, which are independent of one another. Likewise, the Court reaffirmed its position by stating that, in accordance with Article 240, paragraph 2, of the Civil and Commercial Procedural Code, claims regarding industrial property must be decided through ordinary proceedings, regardless of the amount involved, and that the protection of trade secrets falls under this provision.
On the other hand, regarding non-competition agreements, labor case law recognizes that these constitute a restriction on labor autonomy that hinders the worker’s own development in the labor market, since, in the face of availability and mobility, this legal provision—which, while purporting to protect an employer’s legitimate interests to prevent other entities from benefiting from its trade secrets or poaching its clientele—restricts the worker’s full freedom with respect to the activities carried out by the company with which they were previously associated, even after the employment relationship has ended.
In light of the foregoing, it can be concluded that, in El Salvador, as long as the employment relationship between the employer and the employee remains in effect, the employee’s obligation to maintain the confidentiality of company secrets arises from the employment contract between them; consequently, a breach of this obligation constitutes a breach of the employment contract, which may result in the employee being ordered to pay damages in a labor court. On the contrary, if the employment relationship has already ended and there is no longer an employment relationship between the parties, the confidentiality of the information owned by the employer remains protected, but no longer through the employment contract; rather, it is protected by a confidentiality agreement that was duly signed as a result of the prior employment relationship between the parties. In this latter scenario, in the event of a breach, the civil and commercial court has jurisdiction.
If you have any questions about this topic or would like personalized guidance based on your business’s specific needs, please do not hesitate to contact us. We invite you to reach out to our team to address any requests you may have.