MANAGEMENT
legal
the restrictive covenants; whereas if introduced later the employee may not accept them. The introduction of covenants after the employee starts may well be a variation of the contract of employment to which the employer needs to obtain the employee’s agreement. If you are going to introduce covenants after the employment has started it is sensible to do so at the time of pay increases or promotions as the employee is then more likely to agree to them rather than decline the pay rise or promotion. The pay increase will also be a consideration that should help to ensure the employee’s agreement to abide by the covenants is binding. WHaT DO ReSTRICTIVe COVeNaNTS PROTeCT? Restrictive covenants will help to protect against former employees approaching customers or suppliers and poaching key staff. In certain circumstances, covenants prevent former employees dealing with customers, and in more limited circumstances competing with their former employer, usually within a defined geographical area.
Anything other than a minor breach of duty by the employee will normally justify you dismissing the employee summarily
T
o be enforceable, a covenant has to be reasonable. The courts need to strike a balance between allowing the employee to work and protecting the employer’s legitimate business interest. This means the courts will, for example when considering a covenant preventing the former employee approaching customers, look at how long it will take the employer to recruit a replacement and for the replacement to re-establish a trading relationship with customers. In practice, many restrictive covenants prevent an employee competing for no more than six months. If a court considers a covenant applies for an unreasonably long time they will not enforce it. It is safer to err on the side of caution and have a covenant for a shorter period. HOW DOeS THe eMPlOYeR eNFORCe THe COVeNaNTS? If the employee is in breach of their covenants the employer can apply to the courts for an injunction and for damages to compensate for the losses incurred because of the breach. Through the injunction the court can enforce the covenants and order the employee not to contact customers or even prevent them working for a competitor. Breach of an injunction is a serious matter and can have serious consequences for the employee. applying for an injunction, however, does have its risks. The employer will need good evidence that the employee is in breach of the covenants and will need to be able to satisfy the court that the covenants
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are reasonable and protect a legitimate business interest. In addition, injunction proceedings are expensive and if the employer does not have a strong case they are at risk of also having to pay the employee’s legal costs. WHaT CaNNOT Be PROTeCTeD? The employer cannot prevent their former employee using their skill, experience, know-how and knowledge. This is regarded as the employee’s property to use for their own benefit or that of a competitor. The employer also cannot prevent the use of information that is public knowledge. You need therefore to be able to identify information that is particular to the business, rather than part of the employee’s skills, and ensure that confidential information is not so widely disseminated as to become public knowledge. gaRDeN leaVe aND OTHeR PROTeCTIONS There can be uncertainty about the reasonableness and enforceability of a covenant and obtaining evidence to show a former employee has approached customers or used confidential information. One way round these is to have a garden leave clause in the contract. In this way an employee leaving their employer serves out their notice at home, but remains an employee and therefore out of circulation and unable to compete. Courts will not allow garden leave to be too long and six months is probably the longest period you can rely on even if the notice period is longer. garden leave is not an effective protection where the employee is able to show they need to practise their skills; it might make their skills rusty and accordingly they will be put at a disadvantage on the jobs market. a variation on garden leave is for the contract of employment to provide that during the notice period the employer is entitled to vary the employee’s duties within reason and therefore keep them away from customers or sensitive information. DaTaBaSe RIgHTS The Copyright and Rights in Database Regulations 1997 provide additional protection for employers particularly where you cannot prove use of trade secrets or breach of a covenant. You must show you have made a “substantial investment in obtaining, verifying or presenting the contents of the database”. If you can and an employee or exemployee, without your permission, extracts or re-uses all or a substantial part of the database, you have a claim for an injunction, damages and an account of profits. an account of profits means the employee must show how much money he has made from using your database and pay this to you. aDVICe Protecting business information is vital for most employers but it is uncertain, complex and expensive. However, employers can strengthen their position by taking legal advice at an early stage, to write confidentiality provisions and restrictive covenants tailored to the needs of the business, and ensuring they are kept up to date. Procedures should also be put in place and followed so confidential information is clearly identified and only accessed by the employees who need to use it and that employees are made aware of their duty of confidentiality. Where necessary you should monitor employees, so far as the law allows, whom you reasonably suspect may be misusing information. DS Matthew Welch is a solicitor at Bath Law