Employee competition – protecting your business' interests
Elizabeth Padley , July 05, 2016
Employers will welcome the new statutory protection to stop competitors stealing confidential information
Employers must be prepared to deal with misbehaving employees who damage or threaten to damage their customer connections, workforce stability and confidential information. From the first suspicion, employers are on the back foot in circumstances where the full extent of the wrongdoing is unclear. This places employers in a tricky situation where they must deal with patching up their businesses and considering whether to pursue the wrongdoers, instead of directing all their efforts towards day-to-day operations. This is a time-consuming and costly process, particularly if litigation is involved.
Most employers mitigate some risk by including protections in their UK employment contracts, such as restrictive covenants, which may act as a deterrent to wrongdoing. Employers should review restrictive covenants regularly to ensure that they are suitable for employees at each stage of their career.
Employers can be caught out when home-grown talent progresses from a junior office worker to CEO. This is because the reasonableness of a restrictive covenant will be judged at the time that the employment contract was entered into. Companies should document the rationale for imposing restrictive covenants at the outset of the employment relationship, as this information will be invaluable if enforcement is necessary in the future.
Employers are in a strong position if they have valid restrictive covenants, as the courts have the discretion to enforce them by injunction at an interim and final stage and/or award damages. While a costly exercise, an injunction is a powerful remedy as the employee(s) are banned from continuing their offending behaviour for a specified period of time.
In the decision of Arthur J. Gallagher Services (UK) v. Skriptchencko the High Court also took the unprecedented step at an interim stage of ordering the destruction of electronic copies of stolen confidential information remaining on the wrongdoers' electronic devices. It is comforting that the court took such a pro-employer stance. However, organisations should remember that evidence is king in litigation. So if an employer suspects foul play the first step should be to preserve all (potential) evidence, including quarantining laptops, mobile phones and email accounts.
Businesses will also welcome the introduction of new statutory protection to stop competitors stealing their confidential information, which is coming to the UK in the next two years. On 27 May 2016 the European Council approved the European Union Trade Secrets Directive, which creates a minimum legal benchmark to protect commercial secrets and valuable business information. The definition is wider than what is understood to be a trade secret in the UK (the current definition only extends to information that has a sufficiently high degree of confidentiality such as formulas and designs). The definition in the directive covers information that:
- is secret in the sense that it is not generally known among, or readily accessible to, persons within circles that normally deal with the kind of information in question
- has commercial value because it is secret
- has been subject to reasonable steps by the information holder to keep it secret
As there are likely to be gaps between the two definitions, employers are advised to rethink the confidentiality provision in their employment contracts to ensure that all the confidential information it wishes to protect is covered by the terms.
Elizabeth Padley is an employment associate at multinational law firm Dentons