16/04/2015

By Virginia Allen, Senior Associate, Kemp Little


One question which should be at the forefront of any business owner’s mind is, having successfully built a business, how best can it be protected? Whilst the most obvious threat may be posed by competitors, departing employees turned rogue can be just as dangerous. In the digital age, it is becoming ever more straightforward for such employees to make off with valuable business information and contacts. So what can be done to guard against this threat?

Contract is king

Certain duties can be implied into an individual’s contact of employment, such as a duty of fidelity, and in some cases, fiduciary duties. However, there are some significant gaps in the protection that these duties offer. For example, the duty of fidelity does not prevent an employee from taking “preparatory steps” to set up a competing business, and does not continue post-termination. Generally, employees are under no duty to their employers to disclose their or others’ wrongdoing, and the extent of all implied duties is very much dependent on the scope of the employee’s role.

With all of this in mind, the safest option is to put a robust employment contract in place which includes, among other things, provisions relating to confidentiality, intellectual property, and restrictions on an employee’s ability to compete with the business or poach its employees or customers post-termination. Contracts should be regularly reviewed and updated as an employee’s duties change over time to ensure that the appropriate degree of protection is in place.

Notice periods

If a key employee has handed in his or her notice, the employer has several options as to how to proceed. You may wish to ask the employee to continue working during the notice period, perhaps on restricted duties. Alternatively you could place the employee on “garden leave”, meaning that he or she will remain your employee but is required to remain away from the office and not permitted to carry out work or contact colleagues or clients without prior agreement. Often, this is the most effective way of protecting your business, because it allows for a period of time in which your employee’s knowledge of the business and client relationships will stagnate. The third option is to make a payment to the employee in lieu of his or her notice, period, which has the effect of bringing the employment to an end immediately.

Which of the above options you should take is dependent partly on what is permitted by the employment contract. For example, you may not be able to force an employee to carry out reduced duties or to remain at home on garden leave unless the employment contract specifically provides for this. Equally, to make a payment in lieu of notice where the contract does not permit this risks jeopardising the validity of the rest of the contract, including any post-termination restrictions. You will also need to take into account a number of other factors.

One recent court case, that of Sunrise Brokers LLP v Rodgers, indicates that in limited circumstances, you may even be able to require an employee to remain at home on garden leave without having to pay his or her salary, where that employee has proved unwilling to come to work.

When it all goes wrong - weapons in your armoury

If you do find yourself in the unfortunate position of dealing with a departing employee who looks set to join a competing business and intent on taking your confidential information and / or contacts with him / her, there are several ways of dealing with this. Again, an employer’s options will be dictated by contract, and in particular, whether it contains enforceable post-termination restrictions. These restrictions must go no further than necessary in order to protect the business, otherwise they will not be upheld in court, meaning that care is required when drafting them.

If such protection is in place but the restrictions are being breached, the first step is to write to the employee, and sometimes, the new employer too. You may also wish to consider seeking in interim injunction to stop the employee in his or her tracks. Injunctions are an effective, but expensive, remedy in these circumstances. If you are even considering going down this route, the golden rule is to take legal advice at an early stage, since any undue delay will prejudice the employer’ s chances of an injunction being granted.

Employers may also find themselves on the other side of the fence – wanting to acquire new talent in circumstances where the employee is bound by obligations owed to their former employer. Again, such businesses would be well advised to take advice early – since they could potentially be on the hook for inducing a breach of contract on the part of the employee. The good news is that it is usually possible to construct an argument as to why the restrictions are not enforceable, and often some kind of compromise can be agreed between the parties.

What should be clear from the above is that where a rogue departing employee is threatening your business, there are a number of strategies open to you as a business owner. However, employers who anticipate these risks before they arise and put in place appropriate contractual protection will reap the rewards later on when they are far better placed to guard against theft of the “crown jewels” of the business.