Senior Associate at Collingwood Legal, Jane Sinnamon, provides business protection advice to employers following a recent Supreme Court decision.
As an employer, have you ever found yourself in a hostile termination situation with an employee thinking “I wish our contracts had said this…” or “what do you mean there is nothing stopping you from poaching our key customers”? You are not alone.
Never has the need to protect business interests and confidential information been more prevalent than now, when digital media has the power to share information at the click of a button.
From experience, many businesses consider their key assets to be confidential information and knowledge. Departing employees possessing such information are therefore well placed to take advantage of it, for instance by sharing it with a competitor employer or to set up a rival business.
Confidential Information
Relying on the implied duty of confidentiality or telling employees something is confidential’ is in itself not enough to rely on should the employee breach its confidentiality obligations during or post-employment. An employer needs to expressly specify in an employment contract for instance what information is confidential, that the disclosure of such information is prohibited and the consequences of any disclosure. Whilst it may seem obvious what information is confidential, it should never be assumed. For instance, contacts made by an employee via Linkedin could be classed as confidential information belonging to the employer.
Social Media
The huge growth in popularity of social media has created challenges as well as opportunities for every business. Whilst employment relationships have an implied duty of trust and confidence, this can be tested where an employee shares information on social media that potentially damages the business. Defining the importance and use of social media, having procedures (which have been communicated to staff and implemented) in place to monitor employees use of social media which clearly outlines standards of behaviour and consequences if there is any breach are essential to protect business interests.
Post Termination Restrictions
Restrictive covenants (restrictions’) should be used in the employment contracts of senior employees and those who handle confidential information to ensure that the business is protected from the issues caused by an employee leaving to join a competitor or set up in competition. One of the main restrictions used is a non-compete clause which essentially prevents an employee from working for a competitor for a period of time after their employment ends. This is the most powerful form of protection for an employer, but the most limiting for an employee therefore it is essential that such a restriction is reasonable and goes no further than is necessary to protect the company’s legitimate business interests.
The enforceability of such restrictions was recently determined by the Supreme Court in the case of Tillman v Egon Zehner Ltd whereby an exemployee (Ms Tillman) argued that a non-compete restriction in her contract was unenforceable because it was too wide and went further than was necessary to protect the company’s legitimate business interests.
The court agreed with Ms Tillman, however, they felt the clause would still make sense and be enforceable if some wording was removed. In removing such words, the non-compete clause did not fall away meaning Ms Tillman’s challenge failed.
Whilst this decision gives employers some breathing space should the words of a restriction be challenged, employers should look to avoid a lengthy and costly legal battle of this kind. It is therefore essential to take advice on the most appropriate wording to improve the validity of restrictions.
