Protecting company secrets

The days of ‘a job for life’ are long gone. Redundancies are common, as are disaffected staff who can wreak havoc if made redundant or fired. Are you taking the necessary steps to limit the damage they could be do on departure?

Q What steps should I take to try to ensure damage limitation?

A Employers must invest time and effort putting the correct contractual arrangements in place with key staff. Clauses known as ‘restrictive covenants’ can be put into key employees’ contracts of employment, or in a separate agreement. These covenants set out what an employee can and cannot do after leaving an employer’s business.

Q What types of covenant should I consider?

A The most common types are:

– Non-solicitation covenants: restricts a former employee from soliciting customers or clients of the employer. This type of covenant is most likely to be enforced if the pool of customers the employee is restricted from dealing with is limited to those they had personal contact with during a defined, reasonable period right before the termination of their employment. In all cases, the covenant should last for a reasonable period of time.

– Non-dealing covenants: prohibit former employees from dealing with customers/clients of the employer, irrespective of whether the ex-employee initiated the approach. This type of restriction is justified in cases where a non-solicitation covenant would be impossible to police, or where it is likely that clients would seek out an ex-employee.

– Non-competition covenants: prohibit a former employee from engaging in competitive activities. Normally, these restrictions are drafted as area covenants, defined by reference to a radius taken from the employer’s premises, or a territory that reflects the scope of the employee’s duties. A variation of this is a covenant that identifies specific rival businesses and the same principles apply to either type. It is sometimes said that covenants against competition are not enforceable. This is only true because a covenant will be invalid if its effect is solely to restrict competition.

In appropriate cases, courts will uphold such covenants if there is sufficient justification – for example, where the employee has had access to confidential information that may be used to damage the employer if it falls into the hands of a competitor.

Q Can I stop ex-employees from poaching members of my staff?

A The validity of restraints on poaching (the recruitment by an ex-employee of their former colleagues) is now accepted by the courts, if the employer can show that it has invested time and effort in training staff.

But clauses that apply regardless of the expertise or seniority of the person solicited won’t succeed. It is also vital to limit such clauses to the soliciting of former colleagues the ex-employee has had personal dealings with.

Q Anything else?

A Employers must remember that the enforceability of restrictive covenants depend on the facts of each case. A covenant that is enforceable against one employee will not necessarily be enforceable against another.

When drafting covenants, focus on the core risks requiring protection and to tailor the wording to each employee. ‘Less is more’ is often a sound approach.

The law relating to the scope of such restrictions is constantly evolving, so it is worth seeking legal advice to ensure the restrictions are properly drafted and therefore more likely to be enforceable. If these matters are dealt with during the currency of the employment relationship, employers are more likely to enjoy the leaving party.

By Claire-Jane Nicol, solicitor and partner, Dickinson Dees

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