Trade secrets, confidential information and customer related information and details are often as valuable to a company as its physical assets.
Unfortunately, far too many businesses fail to appreciate the need to ensure that robust and professionally drafted restrictive covenants are put in place to protect those interests.
When it comes to the drafting of restrictive covenants, we have the experience and technical capacity to know what will and will not work.
Our aim being to create restrictions which adequately protect your organisation’s legitimate business interests and ultimately, should it become necessary, stand the best possible chance of being enforced by the Court.
WHAT IS A RESTRICTIVE COVENANT AND WHEN WILL IT BE ENFORCEABLE?
Nearly every business has information, software and products that are integral to the success of their business, which if made public or passed on to competitors, could have detrimental and far-reaching consequences.
Your business can use restrictive covenants to protect your interests by restricting an employee’s activities for a period of time after their employment has ended.
A restrictive covenant will only be enforceable if it protects a legitimate business interest otherwise it will be regarded as an unlawful restraint of trade. The only recognised business interests are:
- Trade connections (including the relationship between the business and its customers, clients and suppliers
- Trade secrets and confidential information
- The stability of the workforce
If the business has a legitimate business interest to protect, the restriction will be enforceable, provided it is no wider than is necessary to protect that interest. The covenant must be limited in terms of the restricted activities themselves and also apply:
- For a limited time or
- Within a limited geographical area (if appropriate)
TYPES OF RESTRICTIVE COVENANTS
The most common types of restrictive covenants that employers can use are:
these covenants prevent the employee for working for competitors
these covenants prevent the poaching of clients, suppliers or customers from a previous business
these covenants prevent a former employee from dealing with a previous company’s clients/customers/suppliers (regardless of who initiated contact)
these covenants prevent a former employee from poaching key members of your staff
ENFORCING A RESTRICTIVE COVENANT
Post-termination restrictive covenants are usually enforced by means of an injunction which is granted at the discretion of the court with reference to what it regards as fair in the circumstances.
Cases will turn on their own facts and it can therefore be difficult to predict with certainty whether a particular covenant will be enforced.
However, the effective management of confidential information should not be left until an employee’s resignation is tendered. It should commence when a new employee is engaged.
Generally speaking, in order for restrictive covenants to be legally binding, they must be carefully drafted to ensure they:
- Reflect the circumstances of the business.
- Go no further than is necessary to protect legitimate business interests e.g. worldwide restrictions or restrictions which seek to prevent ex-employees for competing for excessive periods of time will rarely, if ever, be upheld by the courts
- Accurately reflect each employee’s role.
- Precisely define the type of restricted activity (for example, what is meant by terms such as “client” or “customer”).
Your business should regularly review your employment contracts that include restrictive covenants and check whether they need to be updated, for example, if the employee’s role has changed.
Restrictive covenants should always be contained in a document signed by your employee, preferably in their employment contract. Unsigned covenants or covenants contained in a staff handbook or on the employer’s intranet will be more difficult to enforce.
DO YOU NEED ASSISTANCE WITH THESE TOPICS?
Then speak to us for a no cost, no obligation discussion on your needs
IMPLICATIONS OF MONITORING EMPLOYEES’ COMMUNICATIONS
As the number of ways of monitoring employee communications has increased so has the regulatory framework governing their use, such as the Data Protection Act, the Regulation of Investigatory Powers Act and the GDPR.
It is key that employees are given information about monitoring activities and that employers understand the extent to which monitoring can be lawfully carried out.
All employers should have a well drafted and legally compliant communications and monitoring policy in place and must take steps to ensure that all members of staff understand the policy and are aware of the circumstances in which monitoring may take place.
PROTECTING YOUR BUSINESS
Whilst you may not be able to routinely monitor communications, there are other practical steps you can take in order to protect your business. Areas that you can review or have reviewed:
- What information does the employee have access to which would damage your business if known by a competitor or if the employee were to set up on his own?
- Is that information protected by appropriate clauses in the employee’s contract of employment?
- Is the contract of employment signed and up to date?
- Is it made clear to employees what information is confidential and the legal and reputation consequences of breaching that confidentiality?
- Should additional IT security measures be put in place to protect certain data and should access to certain information be restricted to key individuals?
- More importantly, do you check to see if there is evidence of confidential information being misappropriated prior to resignation such as the downloading or emailing of documents and databases to personal email accounts? It is the period prior to resignation when confidential information will be at its most vulnerable.
- Is the employee reminded in writing of his obligations regarding confidential information when she or he resigns? Also, will the new employer be put on notice of those obligations and any other relevant restrictions?
When an employee starts his employment and during his employment, if these issues are properly addressed, an employer stands a far better chance of deterring breaches of confidentiality by departing employees.
Equally importantly, the employer greatly improves its prospects of success if legal action is required to prevent the ex-employee and his new employer making use of that confidential information and of recovering damages in the event that losses are suffered.
HOW WE CAN HELP
We have acted for businesses in circumstances where their proprietary or confidential information has been misappropriated by former employees or where former employees have acted in breach of their restrictive covenants by approaching customers, joining a rival or setting up their own competing business.
If your business is affected by any of these issues it is important that you contact us and take legal advice as soon as possible, since the failure to act quickly may limit your business’s ability to take effective action.
We will advise you on the appropriate steps to take in order to prevent sensitive information about your business getting into the wrong hands.
We can advise you on:
- Whether your Restrictive Covenants are Enforceable?
- How to protect confidential information when an employee resigns
- Whether your Restrictive Covenants are anti-competitive.