The London Taxi Company have recently opened a new factory in one of the Midlands Engine’s most prominent manufacturing cities, Coventry. The factory is due to produce 5,000 electric vehicles per year by 2019 and thus continues the growth of manufacturing in this area.
The opening of the factory raises all sorts of issues, from the impact of Brexit (the factory having been funded by foreign investment), to employment (construction of the factory through to manufacture of the vehicles themselves), and environmental considerations (electric versus fuel powered vehicles). However, another thing that manufacturers such as the London Taxi Company have to think about is how to protect the confidential information that their employees are privy to. How do they make sure that their motors are protected?
Many employees are given access to confidential information in businesses simply by virtue of their employment. For manufacturers, this can include things such as manufacturing techniques, specialised equipment, trade secrets and customer information. Usually this access does not cause an issue during the course of the employment; many employees simply use the information for what it was intended for – i.e. the benefit of their employer. However, problems can rear their head when employees look to move on, particularly if they go to work for a competing business or set one up themselves. Often, sparks can fly and employers need to make sure that they are well placed to protect their business in that situation.
So, how best to do this? Well, the first thing is to ensure that each worker, whether an employee or self-employed consultant, has signed up to a contract. Written contracts are usually much easier than oral contracts to enforce. The terms are clearly set out and can be read by anyone who is literate and has access to the document. This is in contrast to oral contracts, where each party present at the formation of the contract may recall different terms being agreed; if a consensus cannot be reached, then it is often one party’s word against another’s.
It is also important to ensure that written contracts are signed by the employer and the employee or consultant. I have recently been involved a case where our clients had not signed contracts which their employer had sent them. As a result of this, our clients argued that the contracts had not been agreed and their employer was not entitled to enforce the terms of the contracts. Whilst it may seem a drag at the time, when taking on new staff always ensure that they sign and return a copy of the contract to you before they commence employment wherever possible.
If you have a written contract, are you safe? In short, the answer is no. Whilst written contracts are generally easier to rely on than oral contracts, there can still be an argument over the interpretation of the written terms. For this reason, it is important to make sure that contractual terms are as clear and unambiguous as possible. Some simple tips to achieve this include using defined terms and avoiding unduly complex language.
Usually the terms of a contract cease to be enforceable once the contract has terminated. There is an exception to this for post-termination restrictive covenants. If an employer can show that (1) it has a legitimate proprietary interest to protect and (2) that the protection sought by the application of the restrictive covenant is reasonable having regard to the interests of the parties and the public interest, then the employer will be able to enforce the terms of the restrictions even after the rest of the contract has fallen away. If the employer cannot prove these two elements, though, such restrictions will be void by reason of restraint of trade and public policy.
You may rightly ask the question, what does that all mean? Unfortunately litigation over these types of clauses often turns on the facts of the case. Therefore, it is quite hard to provide any general advice. Having said that, key things to consider include:
1) What are you trying to protect via the restriction and is it a legitimate interest? A classic example of a legitimate interest is a customer relationship but there are others that have been recognised in case law.
2) Is the restriction wider than it needs to be? This can be in terms of the interest being protected, the geographical area it covers, the length of time that the restriction lasts for, and many more.
3) Is the restriction reasonable restriction in light of the parties’ and public interest? For example, are you simply trying to avoid having any competition? If so, this would not be in the public interest and is unlikely to be upheld.
If you are seeking to enforce a restrictive covenant against a former employee or consultant and are met with resistance, you would be wise to seek legal advice on enforceability at an early stage as this area of law can be complex. In an ideal world, you would seek advice on your terms before contracts are entered into. However, that is not always possible and the commercial litigation team here are well-placed to advise you on any litigation arising in this area. This might be food for thought next time you jump in your motor and drive to work.