So how can employers in the life sciences industry ensure that their most valuable asset is properly protected?
Employers who suspect a breach or imminent breach should:
- Act quickly – Confidentiality can be lost at a click of a button, so the longer the delay, the greater the chance of the business losing its competitive advantage. Courts do not look kindly on employers who drag their heels and then seek draconian injunctive relief.
- Seek undertakings from the employee – (and possibly the potential employer). Remind them of the employee’s contractual obligations, and seek to obtain promises not to breach them (or induce breaches of them). Many companies require individuals to sign undertakings on exit confirming that they have returned all company property, have not removed or copied any confidential information, and will not breach their restraints. A breach of an undertaking is an easier basis on which to seek an injunction and/or damages.
- Gather evidence – The most common stumbling block for employers seeking injunctive relief is a lack of evidence. Companies should not under-estimate the time that it takes to have a laptop forensically examined, or to review thousands of emails for the “smoking gun.” But an injunction is a draconian remedy so, without hard evidence, Courts are unlikely to grant it.
In an industry which relies so heavily on intelligence, innovation and ideas, employees are integral to success. But in a digital age where information can be copied, stored and passed on more easily than ever, they also have potential to be its biggest threat.
All employers should be alive to the need to protect their confidential information. But in the Life Sciences industry, in an increasingly competitive marketplace where information is particularly sensitive and valuable, this issue should be at the very top of employers’ agendas. Once lost, confidentiality is almost impossible to regain, so prevention really is the key.
So how can employers in the Life Sciences industry in Australia ensure that their most valuable asset is properly protected?
BASIC LEGAL PROTECTIONS
In Australia, employees owe a duty of good faith to their employer. This means that competing with their employer during working hours or misusing company property for their own gain is off limits, as is soliciting clients and customers (or damaging the employer’s client relationships) for their own purposes.
The common law protection, however, is not as wide-ranging as it first appears. For example, preparing for competition outside of working hours or poaching clients on behalf of a new employer may not be prohibited after the employment ends. And what constitutes competitive behaviour or “poaching” will be left to a Court to decide. So it is strongly advisable for employers to set clear boundaries of acceptable behaviour themselves.
During employment, confidential information cannot be used for any purpose other than as directed by the employer. And after termination protection of “trade secrets” continues indefinitely. So employees who work in critical areas and who hold information about secret formulas or patented products are prevented from sharing that information with anyone at any time. Although what constitutes a “trade secret” under the common law will not be as wide as many employers would like.
In most cases, unless employers are dealing with secret formulas or an employee who has deliberately copied and removed documents containing confidential information, they will find the common law of limited use.
Information about market strategies, products in development, client lists, pricing models, know how, and employee remuneration and incentive packages are all examples of information which employers would view as confidential, but which the common law is unlikely to protect, especially after termination.
Employees in the Life Sciences sector are more likely than most to create intellectual property (IP) during the course of their employment. Generally, IP belongs to the employer if it was created during normal working hours and within the scope of the employee’s normal duties. But if IP is created outside of those boundaries, then there is a very real risk that it would belong to the employee. In an industry where that IP can be worth millions and employees are being rewarded handsomely to create it, employers need to ensure that they have full and unencumbered ownership of all IP rights immediately – and this requires contractual provisions.
Contractors are not bound by the same duty of good faith as employees, nor are they bound by the common law duty of confidentiality. They will generally own all IP that they create, whether or not it is within the scope of their engagement and/or during their contracted hours. So it is vital that companies build appropriate express protections into their consultancy agreements.
So, while the common law in Australia does provide some degree of protection for employers, the boundaries of implied terms are open to challenge. Clear and express contractual clauses are strongly recommended to properly protect businesses from unfair competition – particularly in the Life Sciences industry where these issues potentially have such significant value.
Employers should consider having the following in their employment contracts:
- A general contractual obligation to act at all times in the best interests of the company and to comply with all lawful and reasonable directions and all non-contractual policies.
- An absolute prohibition on competition or “moonlighting” during the term of employment.
- A confidentiality clause which defines in detail that information which the employer considers to be confidential, and prohibits the employee from disclosing or using that information both during employment and indefinitely after termination. This can also require employees to use best endeavours to actively prevent the misuse of confidential information.
- An IP clause which assigns all IP created to the company to the extent permissible by law, or gives the company the right to use that IP on a royalty-free basis if assignment is not permissible (for example, in relation to moral rights which cannot be assigned).
- A garden leave clause. This provides significantly greater protection than any post-termination restraints since Courts are much more willing to enforce the employer’s rights while the employee remains on payroll.
- Post-termination restraints, which can seek to prevent competition, poaching of employees, and the solicitation of and dealing with clients, customers and suppliers. Post-termination restraints will only be enforceable if they go no further than is reasonably necessary to protect the legitimate interests of the company (which includes trade secrets, confidential information, and client and supplier connections). Restraints need to be carefully considered and tailored to each employee in order to stand the best possible chance of being enforceable, and employers should also note that laws differ between States and Territories so legal advice is recommended.
Similar provisions are also needed for contracts with contractors and agencies.
OTHER WAYS TO PROTECT YOUR CONFIDENTIAL INFORMATION
Non-contractual policies can be used to convey to employees what information the business regards as confidential, and can be updated as necessary to keep pace with the law and new technologies.
Policies should be reviewed and refreshed on at least an annual basis, and employees should be required to acknowledge that they have read and understood them.
Treatment of information
Courts will only protect information which is truly confidential, so companies should look carefully at how its confidential information is treated and controlled internally. These measures should only be applied to truly confidential information – not all information, otherwise the value is diluted.
Truly confidential information should be disclosed on a “need to know” basis and marked confidential. It should be kept under lock and key and/or password protected, and encryption software should be used when sending it by email. Induction programmes should place a heavy emphasis on the importance of confidentiality and policies should be rigorously implemented to help to demonstrate that certain information is zealously guarded. Action should be taken promptly in the event of breaches.
Employees should be made aware that email communications are monitored, in case an investigation is ever needed. Businesses should be on alert for high risk employees – those with access to a high level of confidential information and those who are the sole contact for certain clients pose the biggest threat to businesses. Employees who suddenly display irregular or unusual behaviour, a downturn in performance, increased absence patterns, or an irregular focus on specific clients should all be monitored more closely.
ENFORCING CONTRACTUAL PROTECTIONS
If a company suspects an employee of breaching confidentiality obligations and/or restraints, the immediate priority is damage limitation: preventing the confidential information from getting into the hands of your competitors, and preventing the employee from breaching their restraints.
Employers can apply to the Court for injunctive relief which, if granted, will require the employee to comply with their contractual obligations and ban them from doing certain things. If made, an injunctive order will prevent damage to the business, so it is a better option than the alternative, which is to seek damages to compensate for the (often unquantifiable) damage caused by the breach.