Confidential Information and Restrictive Covenants
Restrictive covenants are often included within an employment contract by a business to protect their commercially valuable information (confidential information) from misuse after an employee leaves.
Employees are usually required to agree them when joining a company and will form part of their employment contract. The pro-active employers should therefore be reviewing their contracts and restrictive covenants as well as their systems and controls to ensure they afford the right protection to those in business development, client facing and revenue generating roles.
However, with the continued competition amongst employers to attract and retain the most talented employees, the number of issues and claims arising from the breaches of restrictive covenants contained in employment contracts are on the increase. Many employers and, on the other side, employees will likely require legal assistance, especially given the complexity of this area of law and the next steps that may need to be taken, which for example, may include an application to the High Court for an injunction and associated search orders as necessary.
Confidential information can be the most valuable asset of any business.
It therefore needs to be protected as robustly as possible from current or ex-employees and competitors. Both current and ex-employees have potential opportunities to take advantage of their employers contacts, relationships, and sensitive data but advancements in technology, such as social media, has made it all too easy.
Protecting businesses against such unlawful activity can prevent significant loss and damages in the future.
What is confidential information?
Confidential information is often defined at the outset of an employee’s employment within their employment contract. Therefore, what is classed as confidential information may vary from case to case and that of different employers.
However, confidential information can be broadly described as information (whether recorded in documentary form, or stored on any magnetic or optical disk or memory) which is not in the public domain and relates to a business, its products, prices, affairs and finances or any of its related parties. Such information is deemed to be confidential by a business or any related party to the business including, without limitation to, trade secrets, technical data and know-how relating to the business together with business contacts which includes in particular (by way of illustration only and without limitation) email addresses or telephone numbers of customers and suppliers of any business.
Protecting against the misuse of confidential Information
If your business is particularly built on the know-how, skills and contacts of a particular individual or individuals, one of the main ways an employer can protect themselves against any misuse of confidential information is the use of restrictive covenants at the outset of an employee’s employment. Such restrictive covenants are contractual terms which can, if drafted correctly, limit what an employee can do both during and after their employment. For such clauses to be enforceable, they must be reasonable and only as wide as necessary to protect the legitimate commercial interest of the business. Therefore, what is deemed reasonable (and ultimately enforceable) will vary from business to business based on each individual circumstance.
An example of some of the restrictive covenants commonly used in employment contract can be summarised as follows:-
- Non-compete clauses – seek to prevent an employee of a business working for a competing business for a period following the termination of their employment;
- Non-dealing clauses –seek to prevent employees from dealing (doing business with) with customers with whom they built a relationship at their previous place of employment. A well drafted non-dealing clause can prevent an employee from dealing with their previous customers even where the customer approaches them.
- Non-solicitation of clients clauses – seek to prevent an employee soliciting (marketing and/or targeting) the custom of their previous clients; and
- Non-solicitation of staff clauses – seek to prevent an employee from encouraging ex-colleagues to join them at their new place of work.
If it is found that ex-employees or current employers are in breach of restrictive covenants contained in their employment contract, it is important that businesses act swiftly and preserve any evidence of such wrongdoing and take the necessary legal steps to recover any data which may have be misused and enforce the covenants.
There are many options available to a business with the most powerful one being to seek the High Court’s assistance in obtaining an injunction. The court could, simultaneously, also grant orders which, amongst other things would allow a business to:-
- Conduct a physical search of any relevant premises of any person which has misused the confidential information ; and/or
- Allow the forensic imaging of any electronic devices which are under the control of the person who has misused such data. Such electronic devices for example would include laptops, tablets and mobile phones.
This is not intended to be an exhaustive list of remedies available to an employer, but a snapshot of the options that are available to you in order to protect confidential information.
Restrictive covenants are complex and an ever evolving area of law. It is vital to get specialist and up to date advice on post termination restrictions and how they affect you and your business.
For a further discussion and confidential advice, please contact James Twine.