It is not often the first thing to consider when a key employee starts employment. However, it is vital to think about what happens if things do not work out. In particular, what if the employee is not as honest or trustworthy as first seemed?
What is an employer to do if they discover that an employee has been removing or copying sensitive business information or is competing? Understandably, emotions can run high very quickly. Sadly, it is all too common for departing employees to leave their employment to either join a competitor or set up on their own, as well as for current employees to steal data.
In this blog, we set out the key steps and issues that all employers need to think about to protect their business. The issues are very complex and specialist legal advice should always be sought and especially if a discovery is made that a current or ex-employee is competing.
Step 1: Write it down first!
It is a statutory obligation to provide an employee with written information about the terms of their employment (from April these must be provided on day one). However, there is nothing in the statutory written particulars that say what the employee is permitted to do with information belonging to the employer for example, or preventing an employee from working for a direct competitor, or even setting up on their own in competition.
Although an employer is protected from a competing employee to a limited extent by the law, it is never a good idea to wait until the worst happens. Instead, it is vital to consider at an early stage and before employment commences, what it is the employee will be doing, with what and who with.
The best way to do this is to not only issue the employee with a contract of employment (with far more terms than the statutory minimum), but to include restrictive covenants. These are complex contractual clauses that can potentially at least, control what an employee does, both during and after employment has ended. These not only provide legal protection if the worst happens; they also clearly inform employees about expectations and therefore reduce the risk of the employee “thinking something was ok”.
Step 2: Identify the Legitimate Business Interests
An employer cannot prevent all employees from ever working for competitors or using information that they gained whilst employed. The courts will take a cautious view of any restrictions that could prevent an individual from working. The ‘doctrine of restraint of trade’ seeks to make any term preventing an individual from working by using their skills and knowledge as void and unenforceable.
An employer must be able to show what legitimate business interest it is trying to protect. There are generally three:
- Confidential Information and trade secrets;
- Customer connections (as in goodwill); and
- Stable workforce.
Each needs to be considered carefully before it is possible to try and restrict what an employee can do. This is where discussing what it is that is needing to be protected with a specialist advisor is so important. Only restrictions that are considered as reasonable in their length and scope are likely to be upheld.
Step 3: Get (clear) Agreement
Once an employer has a contract of employment with relevant and reasonable restrictions included, it all needs to be agreed with the employee. Too often however, an employer does not insist on an employee signing the contract. This can be fatal to any claim later to protect the business.
Although it can be possible to rely on an unsigned contract, it is far from ideal and runs the risk that a court may not accept what an employer says. It is always best to insist that an employee signs the contract. They should keep a copy and the employer the original (safely).
If an employee refuses to sign, it should be something that is addressed quickly.
Step 4: Do not delay, but less haste…
If the worst happens and it is discovered that an employee is taking or using confidential information in competition or competing with an employer after employment has ended, acting quickly is vital. This is because it might be appropriate to apply to the court for an injunction.
This is a discretionary restrictive order by the court that prevents an employee from breaching the terms of their contract and causing harm to the employer. However, delay can make it less likely that the court will grant an injunction.
In most cases, the issues are complex and time needs to be taken to obtain specialist legal advice before any decisions on how to respond to harm is made. It might be that the risk of not being granted an injunction is too great, as failing to do so might encourage other employees to copy.
The granting of an injunction to an employer usually also carries with it some consequences, including preparing for a court trial quickly, being liable to the employee for income losses if the injunction should not have been granted and as with all litigation, not succeeding in the claims being made.
Getting early specialist advice before any significant steps are taken is always best.
Step 5: Do not wait for the worst to happen
Sadly, we have seen loyal employees with very long service compete and harm their employer. In fact, long service and a senior position can sometimes pose one of the greatest threats that needs to be addressed.
This is especially so for employees who have access to or are provided with sensitive commercial information. These include business plans, profit margins, marketing strategies or close client connections. Often, senior marketing and sales employees can pose a significant threat.
You may have issued your contracts of employment for some employees a long time ago, and these may no longer be fit-for-purpose. A review of contract provisions for existing employees may be appropriate in this situation.
Get in touch
ViewHR is always happy to talk about the threats to your business from employees and how to address them. The law involved is very complex and incorrect drafting of clauses can prevent any redress being possible. Get in touch with a member of the team today for an initial discussion.