Are wages a trade secret?

Employers have some of the most sensitive information about their employees' wages and benefits package, but there are many interests that can be at stake. On the one hand, an employer may wish to keep the wages of individual employees secret from other colleagues, and on the other hand, an employer may have a legitimate interest in keeping the wages and other benefits package of its employees confidential from its competitors. The question is whether wages can be considered a trade secret, the disclosure of which could give rise to a claim for damages against the person who breached the secret, and thus the employee.

What does the law say?

A general rule under Article 8(1) of the Labour Code is that an employee may not, during the employment relationship, engage in conduct that would jeopardise the legitimate economic interests of his employer, unless the law so authorises. According to paragraph 4 of the same section, employees are obliged to keep trade secrets which come to their knowledge in the course of their work. In addition, he/she must not disclose to any unauthorised person any information which he/she has acquired in the course of his/her employment and the disclosure of which could be prejudicial to the employer or any other person.

The concept of a trade secret is regulated by a separate piece of legislation, Act LIV of 2018 on the Protection of Trade Secrets. According to Article 1 (1) of this Act, a trade secret is a secret fact, information or other data and the compilation thereof, which is related to an economic activity, is not publicly known or not easily accessible to the persons performing the economic activity concerned, and therefore has a pecuniary value, and is not known in its entirety or as a compilation of its elements, and the holder of the secret acts in a manner that is generally expected in the given situation in order to maintain the secrecy of the information.

According to Section 5(3) of the Trade Secrets Act, disclosure by an employee to a representative of the employee of a trade secret that he or she has lawfully acquired is not a breach of the trade secret right if the disclosure is made for the purpose of exercising the employee's or representative's right to information and consultation to the extent necessary for the exercise of that right. In other words, the law only allows this exception in the employment relationship, but otherwise the employer-employee relationship can be interpreted as a breach of a trade secret.

According to the Trade Secrets Act, in the event of a breach of a trade secret right, the rightholder may also claim damages under the rules of civil liability.

Not uniform judicial practice

In its judgment Pfv.III.20.509/2022/4/II, the Curia dealt with a claim for compensation for damages suffered in connection with the disclosure of wages. The Curia did not rule on the merits of the case, namely whether wages constitute protected business information, but pointed out that the provisions of the law on business secrets also apply in employment relationships, and thus the law on business secrets and the Labour Code must be interpreted together in employment relationships. This suggests to us that wages, as confidential facts, information and other data relating to economic activity which are not easily accessible and therefore of pecuniary value, and the compilation thereof, may be regarded as trade secrets.

Judicial practice is, however, far from uniform on this issue, there is a judgment according to which salary data relating to employees as a whole constitute a trade secret, and therefore their disclosure to unauthorised third parties may even give rise to a legitimate claim for damages. However, there are also judgments which have held that wages are personal data, that they are freely available to employees, that they have no pecuniary value and that their disclosure does not harm economic interests.

Confidentiality may be a solution

If an employer wishes to protect the confidentiality of payroll data from other colleagues or competitors, it may be good practice to explicitly warn employees in the employment contract, a separate agreement or internal rules that this data will be kept confidential for the duration of the employment relationship, and failure to do so will be a breach of the employment relationship rule. Our view is that contrary employee conduct may be sanctioned, so that if an employee discloses his or her salary and other benefits publicly, without due justification, in front of a large group of people or even on a social platform, this constitutes a breach of the employment relationship obligation. This is considered to be a breach of the employer's legitimate economic interests, which is a breach of the general requirement of conduct under Article 8(1) of the Labour Code, i.e. the employee must not engage in conduct that is detrimental to the employer's legitimate economic interests.

However, the conduct is not sanctionable under the Labour Code or the law on business secrets if the employee, as a private individual, discloses his/her salary to another person or informs his/her prospective new employer in a salary negotiation at a new workplace about the benefits of his/her present workplace.

The appropriate dividing line, therefore, may be somewhere between unlawful and lawful disclosure of wages and other benefits, whereby abusive, public or overbroad disclosure without proper justification, to the detriment of the employer's legitimate economic interests, is unlawful, while such disclosure made with reasonable cause and for a specific purpose may be lawful.

The Wage Transparency Directive

Directive (EU) 2023/970 of the European Parliament and of the Council of 10 May 2023 on equal pay for men and women for equal work or work of equal value (the Pay Transparency Directive)

The Directive sets minimum requirements to ensure that men and women receive equal pay for equal work or work of equal value. The directive covers both the public and private sectors. The directive covers all workers with a contract of employment and even job applicants.

For the purposes of the Directive, remuneration includes not only basic pay but also any other benefit received directly or indirectly, in cash or in kind, from the employer in respect of the employment relationship.

The directive obliges member states to take all measures to ensure that employers have pay structures in place that provide equal pay for equal work or work of equal value.

Transparency of pay must also be ensured for job applicants before they start work, as the directive requires that applicants must be informed by their prospective employer of the starting pay and its range and, if there is a collective agreement, of the relevant provisions of the collective agreement applied by the employer in relation to the position.

An interesting and new provision of the directive is that employers may not ask applicants about the remuneration they receive under their current or previous employment.

The directive requires employers to make information readily available to their employees on the criteria they use to determine their employees' pay, pay levels and pay increases. These criteria must be objective and gender-neutral.

Also new is the provision that workers have the right to request and receive information in writing about their individual pay levels and average pay levels, broken down by gender, for categories of workers who perform the same work as them or work of equal value.

The directive also introduces a new rule requiring employers to provide information and data on gender pay differentials for their organisation in different breakdowns.

The directive also provides for a right to compensation, i.e. any worker who has suffered damage as a result of a breach of any right or obligation relating to the principle of equal pay should be entitled to claim and receive full compensation or reparation for the damage suffered. In such a claim, the burden of proof is on the employer, i.e. to prove that there was no direct or indirect discrimination in relation to pay.

Member states have until 7 June 2026 to transpose the provisions of the directive into national law. These rules have not yet been transposed into the Labour Code.

In summary, the directive will therefore make it compulsory for employers to provide a system of pay structures that are transparent and fully transparent for employees, based on objective criteria, and that exclude gender pay differentials.

Photograph of the author of the article: Dr. Péter Szemán, lawyer, Bán, S. Szabó, Rausch