Alix Beese looks into the important issue of how to protect your business when a key employee leaves.
Most existing customer or client relationships are founded upon deep, long-standing connections between individuals, carefully nurtured over time. A business will invest time and money in winning new customers and maintaining or expanding existing accounts, underpinned by key individual relationships. Many of these relationships are now developed through technology and social media platforms.
When an employee who has played a key role in developing such relationships for the business decides to leave their employment, a major concern for any employer is to ensure that its business contacts are properly protected, particularly in the online environment.
How does the law protect an employer’s business contacts?
Employees are subject to implied duties relating to fidelity, good faith and confidentiality, to protect the interests of the employer during the employment relationship. However, following the termination of employment, such implied duties are substantially limited. It is, therefore, important that employers protect their business by supplementing the implied duties with express contractual obligations protecting an employer’s confidential information both during and after employment.
Restrictive covenants also have an important role to play in some cases, in shoring up an employer’s protection after the employment relationship has ended. Employers can restrict the post-termination activities of former employees in certain limited respects. In relation to business contacts, this might include a prohibition on a former employee from soliciting or dealing with current or prospective customers or clients for a period of time, or even from joining a competitor altogether.
Such restrictive covenants will only be enforceable where they go no further than is reasonably necessary to protect the employer’s legitimate business interests. Legitimate business interests can include confidential information and trade secrets, workforce stability and connections with customers.
Failure to include well-drafted confidentiality provisions or restrictive covenants in employment contracts can leave employers exposed. However, even existing well-drafted provisions may not always be fit for purpose in dealing with the specific issue of business contacts in the online environment.
What steps can employers take to best protect their business contacts, when an employee leaves their employment?
There are many platforms used by employers and individual employees to maintain and nurture their business networks. However, one of the most commonly used tools is LinkedIn.
Under the terms and conditions of LinkedIn user agreements, ownership of a user account itself (usually set up in an employee’s own name) remains at all times with the individual/employee. Therefore, an employer will face an uphill struggle if it wants an employee to transfer their account or disclose their username or password to the employer on termination of employment, so the employer can access the contacts collected by the employee.
The general attitude of the courts is that, where information and contacts are collected during the course of employment (regardless of the LinkedIn account being owned by an employee), any client contact details stored on the account will be the property of the employer. However, much of the case law in this area has been decided on a fact specific basis and uncertainty remains.
To be afforded the best protection, employers should consider the following:
a. Updating existing contracts and employee handbooks to include specific references to contact lists made by employees during the course of their employment (in particular those made on LinkedIn) being the property of the employer.
The most effective way of doing so would be to include a warranty in the employment contract which states that the employee acknowledges all LinkedIn contacts made during their employment will remain the property of their employer and they will be required to delete such contacts from any personal profiles on the termination of their employment.
b. Referring to social media accounts in restrictive covenants as being a potential source of breach and giving rise to indirect solicitation.
Whilst there is no guarantee that such a provision would be enforceable in the courts, employers will at least have the benefit of such a provision acting as a deterrent and making a departing employee stop and think before notifying all of their contacts of their new employer when updating their LinkedIn profile.
c. Introducing a social media policy (if they have not done so already), to set out clear guidelines for use of social media inside and outside the workplace. Having a social media policy ensures that any obligations or requirements (including any potential sanctions for non-compliance) are properly communicated to all staff.
d. Providing employees with designated work social media profiles, with supporting policies in place to ensure that employees are required to maintain a clear separation between their personal social media accounts and their work-related accounts.
Having a work-specific account solely for workplace use reinforces arguments that any contacts made are the property of the employer. It may also be possible to include contractual requirements for employees to provide password and access details to such accounts.