Restrictive Covenants & Confidential Information

What are restrictive covenants?

A post-termination restrictive covenant is a clause within an employment contract that is designed to prevent a departing employee from engaging in certain activities after their employment has ended.The different types of restrictive covenant include:

• Non-solicitation covenants;
• Non-dealing covenants;
• Non-poaching and non-employment covenants;
• Non-competition covenants;
• Geographical restrictions; and
• Confidentiality.

A restrictive covenant may be held to be unenforceable unless it can be proven that it protects a legitimate interest that is appropriate to protect. Such interests include:

• Trade secrets and confidential information;
• Customer relationships; and
• The prevention of the poaching of existing employees.

Additionally, the protection sought must not exceed what is reasonable in the circumstances. In short, employers impose explicitly defined post-termination restrictive covenants to protect their business. Individuals departing from a business are often ideally situated to take advantage of confidential information, strategic plans, customer and client details or other information about the business. For this reason, it is sensible to ensure that sufficiently robust, yet suitably reasonable protection is in place. What is sufficiently robust, yet suitably reasonable depends entirely on the type of business and the seniority of the employee.

Practical considerations to minimise risk

Of course, litigation may prove inevitable, but businesses can consider the following to minimise the risk of an employee breach:

• Carefully considered and drafted restrictive covenants should be included in employment contracts so both employer and employee understand the scope of the restriction and the duration. If the Court concludes that a restrictive covenant is not enforceable as it is unclear or unreasonable in scope, the Court will not rewrite the clause to create a restrictive covenant deemed reasonable and enforceable;
• Save for some types of confidentiality provisions, restrictive covenants should be time limited; and
• It is important to regularly review the wording of covenants to make sure the clause remains fit for purpose.

But what if, despite all of this, a departing employee does breach their restrictive covenants or misuse confidential information?

Breach! What can we do?

1. Identify the cause/s of action - i.e., identify the breach;
2. Collate compelling evidence;
3. Put the (ex) employee on notice of the Claim;
4. Seek undertakings confirming that the (ex) employee will comply with any express or implied obligations; and
5. If this request is refused, the contractual undertakings that are offered are deemed unsatisfactory, or the (ex) employee's actions have already caused the intended damage, then it may be appropriate to issue proceedings seeking injunctive relief and/or damages.

Note, defences are available. For example, there are circumstances in which public policy (or interest) overrides an implied or express duty of confidentiality, and there are circumstances where, if the information is public knowledge, it will not (generally speaking) be capable of protection.

How can we help?

Prevention is better than cure, and avoiding legal action as a result of inadequate restrictive covenants is crucial to avoiding potentially costly dispute in this area. We are able to assist where required, in order to:

1. Draft suitably tailored covenants for employment contracts;
2. Amend and bolster existing covenants within your employment contracts to ensure they are enforceable and that you are sufficiently protected;
3. Instigate appropriate actions against individuals who have, or you suspect they have, breached one or more of their restrictive covenants or misused confidential information. We will guide you through the litigation step-by-step, and work swiftly and efficiently to protect your business from further damage; and
4. Similarly, we are able to skilfully defend actions where individuals are accused of misusing confidential information and/or breaching one or more restrictive covenants.

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If you have any queries on the topics discussed, please get in touch with Michael Miller.