Tying up your workforce
The battle to protect against employee leakage
By Amanda Horswill
Cautious bosses are trying to shut the door on employees joining their competition.
You have just scored the job of your dreams and can’t wait to tell your current boss the good news. Watch out – there could be a nasty surprise waiting.
Employers are sharpening their legal pencils and more frequently enforcing employment contract clauses restricting a worker’s capacity to join a competing firm.
Called "restraint clauses", McCullough Robertson lawyer Hayden Small says many employees are being caught out by this new push, driven by a plethora of vacancies.
The clauses can restrain an employee from working for a competitor or in a particular job type or industry for a specified period of time. They are used to protect any sensitive information collected from a former employer being used for commercial advantage by someone else.
"I think that a lot of employees don’t realise these clauses exist," Small says. "Some employees don’t realise that restraint not only applies to where you can work and after what time, but also that they can’t solicit former colleagues to come over to the new employer.
"Other employees know there is a restraint clause but don’t think it is enforceable. It is enforceable."
The restraint usually covers four things – soliciting former colleagues; contact with former clients; working for a competitor; or going into business for yourself.
Small says employers who think someone has broken a restraint clause can petition a court to place an injunction preventing a former employee from working for a particular company. That serves as an immediate stopgap while the employer builds a case to take an employee to court for breach of contract. The employee can be sued for damages and have to pay court costs, potentially adding up to thousands of dollars.
Small says inquiries about that type of action to his company had gone from a handful of cases a month to a couple of inquiries a week. "It’s a combination of things – we have had a buoyant economy up until recently and that has meant a lot of competition, while at the same time there is a tight labour market. It is only natural companies are going to want to protect their goodwill or value built up through their employees," Small says.
"Five or six years ago (as the economy was taking off) there was a surge of companies writing these clauses into contracts. Now the chickens have come home to roost, so to speak. Those same people are leaving but have forgotten about the restraint clauses and are breaching them, so employers are seeking to have them enforced.
"It is still a tight labour market, and with a slowing economy companies are probably even more anxious to keep their best people in-house and to keep their clients. They are jealously guarding their interests."
The one saving grace for employees is the requirement for the clauses to be deemed "reasonable" by the courts. Small says what is reasonable is governed by weighty legal case history.
"There was one case, not one we worked on, where there were something like 82,000 different combinations of restraints. The actual conduct of the employee was limited to about four or five restraints, but with different combinations of how long the restraint lasted according to the location. So if you were 50km from the business one restraint was applied, if you were in NSW it was different, if you worked 20km from this post office . . . it went on and on. It was obviously not enforceable. That was the silliest restraint clause I have seen."
Advice for employers
Have a meeting with the employee who is leaving to remind them of the restraints.
Make sure there is a witness to the meeting.
If there are no restraints, remind the employee that the company takes its intellectual property and confidential information rights very seriously. Request the employee sign a deed confirming their obligations in this regard.
When the employee resigns have the IT department do a complete search of their email usage to check whether there has been any unauthorised disclosure to a third party.
Employers should also have good systems in place to identify information as being confidential in nature. This may include providing employees with confidentiality agreements, acknowledgement forms, simply marking documents as confidential, sending intranet reminders as well as verbally reminding employees of the confidentiality of certain documents.