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