Post on 11-Apr-2017
Protecting Your Business (from your employees!)Presentation By:Matthew Talbot, Nicola Butterworth & Gordon Simpson
KEY SPEAKERS
Matthew Talbot, Partner‒ 01908 247276 ‒ Matthew.talbot@howespercival.com
Nicola Butterworth, Associate ‒ 01603 580076‒ Nicola.butterworth@howespercival.com
Gordon Simpson, Associate ‒ 01603 580070‒ Gordon.Simpson@howespercival.com
WHAT WE WILL COVER
What businesses need to protect and the importance of doing so
Considerations when employees join
Introduction to intellectual property
Use of the employment contract to protect your business
How to make your covenants enforceable
What to do when Employees leave and breach their contracts
Action available even if your covenants are unenforceable
Remedies
Use of Alternative Dispute Resolution and Mediation
TOP SECRET LIMITED
Top Secret Limited, a cutting edge clothes design house, has
decided to recruit a new principal designer. Top Secret has finally
found an individual to fill the role; Sue Spicious..!
Sue will be working with many of Top Secret’s long standing clients
and will have access to confidential information (relating to clients,
pricing and processes etc.) In fact, Top Secret is just about to launch
a new ground-breaking design “Cloak & Dagger” which will
revolutionise the fashion industry.
4
TOP SECRET LIMITED
What interests does Top Secret Limited need to consider protecting when taking on Sue?
– Top Secret’s customers and clients
– Top Secret’s confidential information
– Top Secret’s intellectual property
– Top Secret’s employees
– Top Secret’s reputation
5
TOP SECRET LIMITED
What factors should Top Secret Limited consider when taking on Sue?
– Why did Sue leave her previous employment?
– Is Sue able to bring clients with her?
– Is Sue breaching her contract with her current employer?
– Is Top Secret inducing Sue to breach her contract?
6
TOP SECRET LIMITED
What steps can Top Secret take to protect itself?
– Obtain reference
– Obtain copy of Sue Spicious’ current employment contract • check covenants
– Internet and social media search
– Invest time in the interview process
– Issue new employment contract (legal obligation)
EMPLOYMENT CONTRACT
What provisions should Top Secret include in Sue’s contract to protect its own interests?
Probationary period Confidentiality clause
Notice Period IP and copyright provisions
Garden Leave Restrictive covenants
Restrictive Covenants Social media
PROBATIONARY PERIOD
– Reasonable period • Right to extend • Monitor
– Dis-apply certain policies and procedures
– Reduced notice period
NOTICE PERIOD
– Reasonable period• Statutory minimum notice period • Seniority • Market availability
– Interaction with ‘Garden leave’
– Payment in lieu of Notice (PILON) clause • Level of payment • Restrictive Covenants
GARDEN LEAVE
– Right to keep employee at home • no duties• restricted / alternative duties
– During notice period
– Salary and benefits
– Interaction with ‘Restrictive Covenants’
– Better protection than restrictive covenants
POST-TERMINATION RESTRICTIVE COVENANTS
General principals
– Void for being in restraint of trade and contrary to public policy unless, Top Secret can show that:
• it has a legitimate proprietary interest that it is appropriate to protect
• the protection sought is no more than is reasonable having regard to the interests of the parties and the public interest
POST-TERMINATION RESTRICTIVE COVENANTS
What are the main types of restrictive covenants?
– Non-competition
– Non-solicitation (customers)
– Non-dealing (customers)
– Non-solicitation (other employees)
– Non-interference with suppliers
– Non-representation
POST-TERMINATION RESTRICTIVE COVENANTS
Legitimate interest – Two categories
• Trade connections and goodwill • Trade secrets and other confidential information
Reasonable protection – No wider than reasonably necessary to protect that interest – Limit by reference to:
• restricted activities• period • (if appropriate) geographical extent of its application
POST-TERMINATION RESTRICTIVE COVENANTS
Non-competition – Legitimate interest: Confidential information and customer
connection – Tips: Consider prohibited activities, duration & geographical
extent– Other points: Only enforceable where non-solicitation/dealing
covenants provide inadequate protection
Non-solicitation (customers) – Legitimate interest: Consider pool of prohibited customers – Tips: Restrict to customers with whom employee had dealing
within a specific period – Other points: Meaning of ‘solicitation’ and Potential customers?
POST-TERMINATION RESTRICTIVE COVENANTS
Non-solicitation (other employees) – Legitimate interest: Stability of workforce – Tips: Most likely enforceable if limited to particular seniority or
expertise – Other points: Must be linked to employee’s exercise of
personal influence
Non-dealing (customers) – Legitimate interest: Consider pool of prohibited customers – Tips: How long does the employer need to rebuild client
relationship? Focus on contact that would affect employer’s business, not any contact
– Other points: More onerous than non-solicitation
POST-TERMINATION RESTRICTIVE COVENANTS
Court’s Approach
– Covenants must be sufficiently certain
– Will construe covenants to give effect to the intention of the parties
– Assessed in the light of the facts and circumstances as they were at the time when the covenant was entered into
– Court will not re-write a covenant • ‘blue pencil test’• Prophet Plc v Huggett [2014] EWHC 615 (Ch)
POST-TERMINATION RESTRICTIVE COVENANTS Is this non-competition covenant enforceable?
– An estate agent has a clause in its contract of employment stating:
“You shall not set up a business, or work for a business in any capacity, in direct competition with ourselves within a five mile
radius of any of our sites which you have worked at in the previous 12 months, within the same 12 month period.”
RESTRICTIVE COVENANTS
Is this non-competition covenant enforceable?
YES NO
RESTRICTIVE COVENANTS
Is this non-competition covenant enforceable?
YES NO
POST-TERMINATION RESTRICTIVE COVENANTS
Court’s Approach– Tim Russ & Co v Robertson & others [2011] EWHC 3470 (Ch)– Legitimate Interest
• Court held that the covenant was wider than was reasonable for the proper protection of the legitimate interests of Tim Russ. It covered an area of activity in which R was in no way concerned (letting activities)
– Reasonable protection • Court also held that even if the covenant had been justifiable, 12
months was longer than was necessary to protect any customer connection
• If R’s activities operated across a 12-monthly cycle, e.g. an annual re-letting cycle across a portfolio of residential landlords, then the period might have been justified, which was not the case here
POST-TERMINATION RESTRICTIVE COVENANTS
Top Tips
– You know your business and industry • the Judges don’t
– Identify the risks to your business dependent on the job title seniority of the employee
– Review your covenants as the risk increases • Changing terms and conditions • Consideration
POST-TERMINATION RESTRICTIVE COVENANTS
What if Sue Spicious disputes any of the restrictive covenants? – Explain reasons and justify clause
– Opportunity to sell yourself as responsible employer
– If Sue raises constructive points • listen to these • (if appropriate) make amendments
– If Sue raises inappropriate concerns• warning sign?
INTELLECTUAL PROPERTY
An introduction to IP (in under 3 minutes and using just a coffee cup)…
INTELLECTUAL PROPERTY
Does your business own any IP?
YES!
INTELLECTUAL PROPERTY
Who owns the IP created by… Employees?
Consultants?
Agency workers?
INTELLECTUAL PROPERTY Action points Ensure the scope of an employee’s employment is clearly defined
Include IP provisions in employment contract / have an agreement in writing to assign any IP they create to the employer
Keep records of your IP and the IP your employees create
Have separate agreements with persons engaged in the business who are not employees e.g. partners, directors or consultants
If the employer does not own IP, employee can deal with it as sees fit including selling it to competitors or, potentially, prohibiting you from using it!
INTELLECTUAL PROPERTYThe quirks of IP
Copyright – Moral Rights
Trade marks - missing the boat/being leapfrogged
Patents – employee’s right to compensation
INTELLECTUAL PROPERTY Your liability for an employee’s infringements Employer can be held liable for an employee’s infringements
Need to consider the degree of proximity to their employment
Generally liable if infringement is carried out in the course of employment, even if it is carried out outside of working hours or off site
Do your employees understand what they can and can’t do?
INTELLECTUAL PROPERTY Joint tortfeasorship and directors liability
Did a director authorise, direct or procure an infringement of someone else’s IP rights? If so that director could be personally liable
Don’t panic: in the clear if you just carry out statutory duties
SOCIAL MEDIA
Benefits
Risks
What can businesses do to solve the social media headache?
SOCIAL MEDIA
Who owns a company’s LinkedIn contacts? Employer or Employee?
Current position If a personal account – employee in a stronger position If the contacts amount to private information gained during
employment – the employee’s position is likely to be weaker If compiled from uploaded email address at work, contacts provided
by employer, or employer has paid for premium account = employer in stronger position
SOCIAL MEDIA
Solving the headache Social media policy
Controlled social media accounts i.e. hootsuite
What to include in a policy Require employees to log all new contacts on customer database
Require employees to delete all contacts made as a result of their duties
Contacts made as a result of their duties cannot be used for the purpose of
competing with employer
Control of Linkedin groups managed by employee to be passed to employer
List of prohibited uses
DATA PROTECTION
Protecting the personal data of your employees, customers, potential customers, contacts, suppliers etc is YOUR responsibility
You will be liable as the “data controller” for any breach of the Data Protection Act 1998
In very basic terms: get up to speed, get consent and keep control
CONFIDENTIALITY
Better to have express clause
Define “Confidential Information”:
What information does employee have access to?
Be specific about information protected
Employee is allowed to exploit own personal skill, training,
qualifications and general knowledge
RETURN OF PROPERTY Be both general and specific
Cover all types of equipment and property
Intellectual property and confidential information
Recover passwords
Right to withhold payments?
TOP SECRET LIMITED
Sue Spicious has been working at Top Secret for 18 months now.
Her normal working hours are 9am - 5.30pm, but she has been
arriving at 7.30am and not leaving until after 7pm. She has
suggested that all designers draw up a list of all their customers and
pricings. Sue has been spending a lot of time photocopying
documents and has been sending a high number of emails to her
home email address.
Guy Lubble, Director of Design, thinks Sue is stealing confidential
information.
TOP SECRET LIMITED
What should Guy Lubble do? Check contract and policies and procedures
Monitor emails / phone calls / internet usage
Review phone bill
Consider suspension
Speak with other employees
Discuss with Sue
Avoid breaching the contract / constructive dismissal
Consider disciplinary action
TOP SECRET LIMITED
Guy Lubble didn’t do anything and promoted Sue Spicious a while later because of the long hours she had been working.
Sue Spicious has been working for Top Secret for 3 years now. She has been managing the team. She asked to leave for family reasons to spend more time with them. Guy Lubble, Director of Top Secret agrees a reduced notice period.
After she leaves, Guy Lubble becomes concerned because customers are calling on Sue Spicious’ work mobile which she returned. Other members of the team, Joanna Joinme and Donna Runner also handed in their notice.
What should Guy Lubble do?
TOP SECRET LIMITED
What should Top Secret do in light of Joanna and Donna’s resignations? Accept notice (in writing)
Check contracts of employment
Speak to Joanna and Donna about their reasons for leaving
Will Joanna and Donna work their notice? If so, doing what?
Garden leave or PILON
Monitor emails / phone calls / internet usage
Avoid breaching the contract / constructive dismissal
TOP SECRET LIMITED
What should TSL do now about Sue Spicious? Evidence gathering
Act quickly – do not delay
Contact former employee
Consider enforcing full notice period
Inform new employer of post contractual restrictions
Consider letter before claim (to former employee and new employer)
Where to look for evidence… Sue Spicious’ computer
Work Mobile phone
Top Secrets customers-need to market to them anyway and this may identify evidence
Suppliers – need to communicate with them as members of the team left – but you may find out if they are being contacted by them
Competitors’ websites
Social media
What Covenants would help Top Secret? Garden Leave
Non-solicitation customers
Confidentiality clause
Non-dealing clause
Non-competition clause
Non-solicitation of staff
REMEDIES
Injunction
Damages
Account of profits
Against who? Former employee? Former employee’s new employer? Both
What if the Covenants are not enforceable? Can Top Secret rely on implied duties?
• Duty of fidelity and good faith• Faccenda Chicken Limited v Fowler [1986] 3 WLR388• In Attorney General v Blake [1998] 2 WLR 805, Lord Woolf described duty
as follows:“The employee must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third party without the informed consent of his employer”
Other Implied duties
• not to disrupt an employer’s business• not to compete• not to solicit the employer’s customers• not to entice employees• to disclose wrongdoing• confidentiality• not to use the employer’s property• to account
Why need express clauses? • implied duties are facts specific • Express clauses are specific to your business.• Implied terms usually only apply whilst employed - not post termination
Considerations regarding action to take Try not to base decisions on your emotions
Make commercial decisions
Identify the potential risk and potential loss
Get advice on the prospects of success
Identify the cost - balance the costs against the risks
Consider alternative dispute resolution
Alternative Dispute Resolution
Alternatives to going straight to Court
Can you achieve your objectives with a strong letter?
Will written undertakings suffice as opposed to an injunction?
Will your covenants and your evidence stand up to scrutiny by a Court?
Consider mediation
Mediator’s Role
A mediator will help the parties to achieve a settlement. The mediator does not decide who is right and who is wrong.
He speaks confidentially to each side to obtain information about their position, without disclosing it to the other party.
He assists the parties in testing the strengths and weaknesses of their position
He assists the party’s in identifying the areas where negotiation and compromise may achieve settlement
He will help the parties identify practical solutions. He will encourage the party’s to make commercial decisions, taking into
account risks.
Benefits of mediation You have control over settlement rather than it being in the hands of the
Judge It is an opportunity to make a commercial decision to avoid the risk of Court
proceedings It can be arranged quicker than Court proceedings and can achieve
settlement sooner It is cheaper if it is successful It allows you to get on with your business It gives you flexibility over resolutions with options available that the Court
cannot consider It has a good success rate – 75% + There are cost consequences if you do not consider mediation
Other risks caused by employees not covered in detail Damage or theft to your property - covered by employment
contract/insurance
Acts of discrimination - covered by disciplinary procedure and training
Claims by employees – covered by appropriate policy procedures, risk assessments and insurance
Employee errors causing complaints and claims – appropriate training and communication
Summing up… This is important – use your knowledge of your industry to identify the risks
and take action as appropriate
Put in protection measures that are proportionate to the risk and be able to justify them
Don’t ignore your intellectual property
Look after your staff
Look after your customers
Regular review of the risks Keep a commercial outlook to disputes
QUESTIONS?
Protecting Your Business (from your employees!)Presented By:Matthew Talbot, Nicola Butterworth & Gordon Simpson