Protecting your business when an employee seeks to join a competitor - it all starts with the Contract of Employment

We often see problems arise when employees leave a technology business and seek to use confidential information for the benefit of their new employer, or attempt to take intellectual property.

These assets are intrinsic to any business and there can be serious financial implications if they come into the possession of competitors.

It's, therefore, crucial that businesses have appropriately drafted Contracts of Employment in place to protect key assets and help mitigate the risks when employees leave.

How do I protect my key assets when a former employee goes to work for a competitor?

The first question is whether the employee is contractually permitted to join a competitor in the first instance.

Restrictive covenants within Contracts of Employment can seek to prevent employees from undertaking certain activities when their employment comes to an end. This may include preventing them from joining competitors, poaching key staff or dealing with suppliers and customers for a period of time.

There's sometimes a misconception that Restrictive Covenants are always unenforceable. If drafted appropriately and reasonably, taking account of the key interests an employer is seeking to protect, Restrictive Covenants can be enforced and used as a vital tool when safeguarding a business.

The importance of well drafted Restrictive Covenants was highlighted in the case of Dyson Technology Ltd v Strutt. In this case, Dyson successfully obtained an injunction restraining a former engineer who had joined another company that designed and manufactured tools including vacuum cleaners, from carrying on business or having an interest in a business that was similar to or competed with Dyson for 12 months.

Dyson had concerns about the individual disclosing confidential information to his new employer, and the Restrictive Covenants enabled them to restrict the individual’s activities for a period that was long enough to protect those trade secrets.

What else should the Contract of Employment cover?

In certain roles, it's also likely that employees will create substantial intellectual property rights in the course of their employment. It's, therefore, vital that the Contract of Employment is clear that any legal title will vest in the employer, and that necessary mechanisms are in place to transfer any such rights on termination in the event of a dispute.

Tight and robust confidentiality provisions that are tailored to your organisation and include steps required to return confidential information on termination should also be included, particularly, given in the absence of an express provision, the law is not certain as to what confidentiality would be protected.

Practical advice for your business

You should take the time to review your existing contracts of employment and ensure they're fit for purpose, particularly given employees’ roles will change, but the exercise of updating their terms can get missed.

When varying terms, you should take advice to ensure changes are properly incorporated into the Contract of Employment, particularly given some consideration would usually need to be paid to incorporate new Restrictive Covenants.

You may also wish to consider your approach in the event an employee leaves and joins a competitor.

At the very least, we recommend reminding departing employees of these provisions and if necessary, confirming your intention to enforce them, if breached. An exit interview is a good opportunity to flag this.

If you have any questions, please contact Jameel Mann or Emma Williams.

Our content explained

Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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