Protecting your business - SMEs are advised to take a strategic approach - July 2008
Most organisations would agree that their most valuable asset is the confidential information and knowledge they use in business.
Businesses also have obligations towards others. The duty to protect personal data has been a recurrent theme across the past months as media stories have broken about data loss. A lamentable degree of lax work practice has been in evidence as CDs storing personal data have been lost in the post and unguarded laptops have been stolen. Both Government bodies and commercial enterprises have come in for this bad press.
Businesses are thus reminded that they should take steps to ensure all personal and confidential data is protected. In the work place this will include installing secure systems and storage with access restricted to a select number of employees; logging and monitoring visitors to premises; and shredding confidential waste to ensure important information is seen only by those who are meant to see it.
Restrictive covenants
In terms of the business’s own confidential information, there are challenges when departing employees try to use the business’s confidential information when they leave to work for a competitor.
To protect itself the business should include ‘restrictive covenants’ in employee contracts.
As a general rule the law does not approve of restrictions in employment contracts, considering them to be anti-competitive and contrary to public policy. A court will only enforce a restrictive covenant if it protects a “legitimate business interest” and providing it extends no further than is reasonably necessary to protect that interest. Typically, such covenants will oblige the ex-employee not to divulge confidential information (such as product pricing or customers’ addresses) and not to work for a competitor for a certain period of time after employment has ceased. Identifying the most appropriate type of covenant to protect the relevant business interest will assist in ensuring that the covenant is reasonable and enforceable.
If an organisation seeks to challenge an ex-employee then they can commence a court action and seek an injunction against him or he. The court will look at the intention of the clause. If it considers a restriction to be unreasonable, it will not re-write it, although it may “sever” parts of the covenant which could leave the remaining restrictions enforceable.
To increase the chances of getting a restriction upheld in Court, the employer should ensure that new employees take independent legal advice as to the terms of employment.
Where there are no restrictive covenants
Where the business has not agreed restrictive covenants with its employees, to what extent are they able to protect their business?
At a senior level, directors owe the employer company “fiduciary duties”. The obligation owed under a fiduciary duty is high, requiring the director to act solely in the best interests of the employer (such as the duty to be loyal to the company and the duty to avoid any conflict of duty or self-interest in their dealings as director).
Last year’s case of Crowson Fabrics Ltd v Rider & ors is helpful to employers. The decision reiterates that senior employees owe their employer fiduciary duties (even in the absence of written restrictive covenants).
Practical tips for dealing with employees:
- non-compete, non-solicitation and non-dealing clauses in senior employees’ contracts of employment ensure that those contracts always reflect employees’ current roles
- clear intellectual property and copyright provisions in employees’ contracts
- confidentiality provisions in employment contracts, clearly defining ‘confidential information’ and ensuring such information is handled within the business in a way that reflects this status
- consider the advantages of using garden-leave clauses for senior employees who hand in their notice
- conduct exit interviews to document the employee’s career intentions and to remind the employee of those terms of the employment contract that will continue to apply after their termination (restrictive covenants and confidentiality provisions)
Independent contractors
We have so far considered the situation in relation to employees. However what about the independent contractor; how might a business protect itself in this situation? Entering into a confidentiality agreement would be a prudent step • the findings of a celebrated case reinforce this.
In 2000 the supermodel Naomi Campbell brought a case against her former PA, Ms Frisbee. Ms Frisbee had not been an employee; instead she was an independent contractor and she and Naomi Campbell had entered into a confidentiality agreement. That relationship had broken down when Ms Frisbee alleged that Ms Campbell had violently assaulted her. Ms Frisbee then sold her story to a national tabloid newspaper which published an article making allegations about Ms Campbell’s private life.
Ms Campbell brought a legal action against Ms Frisbee for breach of confidence. In her defence Ms Frisbee referred, amongst other matters, to Ms Campbell’s poor behaviour.
The decision that was handed down in 2002 found that Ms.Frisbee’s disclosure to the tabloid newspaper of confidential information concerning Ms Campbell’s private life was in breach of Ms Frisbee’s duties of confidentiality.
The issue of business protection is a complex area. If you have any issues around this subject you are welcome to contact Seth Lovis & Co on 020 7420 7020 or enquiry@sethlovis.co.uk.