This is an article designed to ensure that all the hard work applied to building your business does not exit with your departing employees!
Even with the most effective engagement strategy, employers will not please all of the people all of the time. For this reason, it is paramount for employers to have strategies in place to protect their business if key employees leave.
There are many ways in which an employer may protect its business, and choosing the most appropriate (which is likely to be a combination of the areas below) will depend on the type of work that is carried out and the industry sector in which the employer operates. Post-termination restrictions and confidentiality clauses are commonly used, but employers should also consider the potential impact on their business of the use of social media including LinkedIn and Facebook.
POST TERMINATION RESTRICTIONS
Post termination restrictions, also known as restrictive covenants, should do what their name indicates; restrict employees’ activities after their employment has ended. Usually, these restrictions are contained in Contracts of Employment and fall into three categories:
Non-Solicitation of employees/clients: this essentially means that the employee is agreeing not to contact the employer’s clients (or possibly potential clients) to obtain business from them and/or agreeing not to poach their former colleagues;
Non-Dealing: this means that the employee is agreeing not to do business with clients (or possibly potential clients); and
Non-Competition: this is the most difficult type to enforce because of its restrictive nature, but in essence means that the employee is agreeing not to work in competition with the employer.
The key point to remember with post-termination restrictions is that there is a general rule that they cannot be enforced because they are contrary to public policy as an unlawful restraint of trade, unless the employer can show that:
it has a legitimate interest that it is appropriate to protect (for example, trade connections or confidential information); and
the protection sought is no more than is reasonable.
The public policy rule means that it is very important that post-termination restrictions are carefully drafted. To ensure there are strong prospects of enforcement, consideration will need to be given to (amongst many other factors):
the seniority of the employee;
the length of time the restrictions last for after termination;
what is meant by “clients”; and
whether there is any limit in terms of location.
Employers should also pull together as much information as possible about the job that the employee carries out and where they fit in the structure of the business to obtain the most accurate advice on suitable post-termination restrictions.
Thought should also be given to garden leave clauses, which can be very effective; such clauses have the effect of taking the employee out of the “marketplace” during their notice period.
Often employers consider information and knowledge to be fundamental to their business and even well-drafted post-termination restrictions will not sufficiently protect this. Such information and knowledge could include a secret recipe or formula, a list of key business contacts and customers, or specialised IT systems and data which, if disclosed to a competitor or to the general public, could cause damage to their business.
Although “trade secrets” can be protected without having a particular clause in the Contract of Employment, most information, although vital to an employer, will not be considered a “trade secret.” For this reason, confidentiality clauses are commonly included in Contracts of Employment.
Advantages of confidentiality clauses include:
they are more likely to be enforceable than restrictive covenants; and
they can last much longer than post-termination restrictions.
A good confidentiality clause will protect the business both during and after termination of the employee’s employment, and should set out what type of information is considered to be confidential.
We advise that a confidentiality clause is included in all Contracts of Employment, Service Agreements and Consultancy Agreements.
DATABASE RIGHTS AND SOCIAL MEDIA
Although a confidentiality clause might include reference to databases being confidential, increasingly often we see problems when a dismissed employee seeks to use a database of contacts that he or she has built for the purposes of their work, using social media tools such as LinkedIn or Facebook.
In the information society, databases are simply modern forms of property. A database is often such a valuable asset that businesses are increasingly looking to exploit them in their own right. Many employees will be engaged in producing databases, whether as their main role, or in adding contacts for the purposes of developing the business.
The general rule is that the employer is the owner of the database if an employee has created a database during the course of his or her employment, but this is a developing area of the law when linked to social media. If an employee has used social media to create a database, it will depend on the circumstances as to whether the employee or the employer is considered to be the owner of the database and what the employee can do in relation to contacts made. For this reason, we recommend:
setting out rules about the use of networking accounts and how contacts should be recorded and used. This could be by way of a social media policy and/or in the Contract of Employment; and
including a clause setting out details of intellectual property rights in the Contract of Employment.
In summary, to protect their business, employers should:
Get existing Contracts of Employment, Director Service Agreements and Consultancy Agreements reviewed;
Obtain advice on specialist drafting of post-termination restrictions, garden leave, intellectual property and confidentiality clauses; and
Put in place a social media policy and/or contract clause including relating to how contacts made through LinkedIn and Facebook are treated at the end of employment.
Please contact us if you have any queries about how to protect your business, or indeed if you want to find out if you can take advantage of a competitor’s failure to sufficiently protect its business when you want to hire its employees!