Confidentiality & Restrictive Covenants
We recognise that employers have to place a lot of trust in their employees – particularly senior employees. This is particularly the case when it comes to accessing and using confidential information owned by the businesses, whether that be databases (e.g. clients/marketing), pricing, products or intellectual property generally.
Employers should seriously consider the protection of their business by restricting an employee’s activities after the employment relationship has ended. Often employers try to do this by inserting ‘restrictive covenants’ into the employment contract.
It’s difficult to have a blanket protection – compromises need to be made so as not to hamper the business. The starting point is to manage confidential information through the use of confidentiality clauses and restrictive covenants in employment contracts. When promoting employees to senior positions you should consider taking the opportunity of including enhanced restrictions that reflect their seniority in their new contracts.
Protection employers should consider the following:
Confidentiality clauses in employment contracts are usually enforceable because courts recognise that employers have a right to protect confidential information. We draft confidentiality clauses to prevent employees from disseminating information that is confidential to the employer.
There are four kinds of business information: the category into which a piece of information falls will govern the extent to which it can be protected and the remedy available in the event of its disclosure:
- Trade secrets: these can be protected both during and after employment, even if there is nothing agreed in writing.
- Confidential information: employees must not use or disclose this while their employment continues.
- Information that amounts to skill and knowledge of the employee: if the information belongs to the employee, it can be used as the employee wishes.
- Public information: information that is in the public domain cannot be protected.
Restrictive covenants may be included in contracts to prevent employees from misusing company information but their primary purpose is in respect of the following:
- Non-solicitation: to prevent ex-staff from soliciting the business of your customers for a certain period after the contract of employment is terminated;
- Non-dealing: preventing ex-employees from dealing with customers;
- Non-compete: preventing ex-employees from working for a competitor;
- Non-poaching of staff: preventing ex-employees from poaching your existing employees.
The Courts tend to start from the position that restrictive covenants are a restraint of trade and, as such, the employer will need to be able to justify them. To do so, employers will need to be able to show that they are seeking to protect a ‘legitimate business interest’ and go no further than is necessary to do that.
The trend has been for the Courts to be only prepared to enforce shorter and shorter restrictions. 12 months is now considered to be the high end, with 6 months now being the safest time restriction that you could confidently expect a Court to find reasonable. For example, it is commonplace for the Court to say that 6 months is a perfectly adequate time to enable employers to protect its client base from an employer leaving to work for a competitor.
How Can We Help You?
It is of utmost importance that restrictions are carefully drafted so as to ensure that they are enforceable should the time come to utilise them. This is one occasion when one size doesn’t fit all. That said, simply having restrictions in place can often act as a deterrent.
We are here to work with you to establish exactly the type of restrictions you require and what will work for you in practice and we can provide you with bespoke and carefully drafted restrictions to suit your requirements.
For more advice, please contact a member of our team.