Departing Employees Working for Competitors
We often receive telephone calls from clients, seeking our advice when their senior employees depart the business and commence working for a competitor.
What, if anything, can be done to prevent this and how can business owners protect their clients and confidential information?
Legally, the business owner first needs to review the employment contract signed by the departing employee and see what protections the contract provides to the business. For example, does the contract contemplate protection of confidential information? Does the contract deal with conflict of interest? Does the contract provide for a restraint of trade which prohibits the former employee working for a competitor and/or poaching clients? Does the contract allow the business to place the employee on gardening leave for their termination period?
What if the employee hasn’t signed an employment contract?
Then the business still has some rights at common law against the employee, primarily in relation to protection of the business’ confidential information. However, it is difficult (but not impossible) for the business to restrict an employee’s movements after they have departed the employment without a properly drafted employment contract.
What if the business owner has concerns that the employee was ‘leaking’ information regarding clients, pricing structures or the like to the new employer while still employed?
It is imperative that the business ensures that the employee has returned all company property including confidential information before they depart the premises.
The business needs to gather evidence from a number of sources to determine the employee’s activities while still employed. E.g. by reviewing the departing employee’s email accounts – but ensure policies and procedures allow you to do this, reviewing telephone records, interviewing fellow employees or perhaps even interviewing clients if appropriate. While employed, the employee still owed the business a duty of fidelity and good faith and if it breached that duty, then the business may have grounds for legal action.
What is the next step?
For serious breaches that could financially damage a business, then the business owner needs to act fast and may even consider applying to the Supreme court for urgent relief or search orders to allow the business to enter the former employee’s property and take possession of confidential information.
For less serious breaches, a cease and desist letter may be all that is required. Or, if there is sufficient evidence that financial damage has occurred to the business because of the former employee’s breach of his employment contract, then a claim for damages may be commenced in court.
How can business owners’ best protect themselves?
Ensure that employment contracts are regularly reviewed and updated. When employees move into more senior positions with great access to the business’ client base and confidential information such as pricing structures, it is a good time to review and update the contract to ensure it provides maximum protection to the business in the event that the employee departs.
Ensure that appropriate policies and procedures are in place to allow the business to review employee’s emails, phone records and the like if there is suspicion that the employee may be breaching confidential information.
Please feel free to contact Christie Howson should you wish to discuss further.