Employees have access to the key assets of any business; its confidential information, trade secrets, clients, customers, suppliers and other employees. To protect these assets from employees who set up in competition, businesses should get employees to sign well drafted contracts that protect these key assets. Each contract should be appropriate to an employee’s position in the business and the assets that they have access to, and updated as the employee progresses through the business. The key areas to focus on include:
Duties: The duties clause is particularly important for senior employees and employees with access to key clients. While the law says that all employees are required to act in their employer’s interests while at work and not use work time for their own interests, this may not be enough to protect a business against employees who start to think about their future plans while still in employment. Where an employee could be a risk to the business, as well as setting out the employee’s duties, their contract should include clauses requiring them to further the business, not to divert business opportunities and to report any wrongdoing by them or any other employee.
Notice period: Think about what is the right length of time for an employee’s notice period, balancing the need to prepare for an employee’s departure, with the time that an employee is still employed if things don’t work out or after they’ve mentally moved onto their next employment. When you know an employee is leaving, think about whether you want them to stay in the business during that notice period. If they are joining a competitor or setting up in competition, do you want them to continue to have access to confidential information and clients?
Garden leave: One option for all or part of an employee’s notice period is to put them on garden leave. This means that they remain an employee but do not come into work. While they can be contacted to deal with any questions during this time, they are not contacting clients and learning key business information. However they do have to be paid throughout the period and generally it’s only possible to do this if the employee’s contract includes a clause allowing it.
Confidential information: Include a comprehensive confidentiality clause in an employee’s contract, which prevents the employee from using and disclosing confidential information, and set out examples of what information is confidential. Without it, a court will only stop employees using trade secrets, not other information that may be equally valuable to the business, such as client contact information and contract details.
Restrictions on the employee’s activities: To further protect client connections and confidential information, include restrictions on an employee’s activities after they leave their employment. These type of restrictions will be enforced by the court if they protect the legitimate interests of the business and go no further than is reasonably necessary to protect those interests. To make sure of this, well drafted clauses reflecting the needs of the business to protect itself from that particular employee at the time they sign the contract are critical.
Without a good written contract signed by an employee, businesses will be relying on a verbal agreement and the clauses that the law says should be included in those agreements to protect itself. This is unlikely to give it the protection it needs if an employee decides to set up in competition using information that they’ve gained whilst in employment.