In our January 2014 In-House Counsel Newsletter, Claire-Jane Nicol outlined the steps employers should take to protect their business from the loss of key employees. This focused on precautionary action to ensure that contracts of employment are correctly drafted so as to provide maximum protection for the employer and to clarify what the leaving employee can and cannot do.
However, no matter how carefully contracts are drafted, some employees will inevitably choose to leave, disregard their contractual obligations and act in a manner which can cause serious harm to the business they are leaving. It is also common for an employer, when faced with the loss of a key employee, to realise that its contract did not provide the protection it had hoped.
In our experience, an employer can minimise the risk of harm to its business when faced with the loss of a key employee by taking simple protective steps. The following steps can apply whether there are properly drafted "leaver" obligations in the employment contract or not.
- Ensure the employee is immediately prevented from accessing premises and IT systems
Such systems may be located or accessed at the employer's premises, but also remember that other items (such as laptops, tablets and mobile devices) may be off-site and steps should be taken to ensure access to all systems is frozen, wherever they are located. This should be done at the earliest reasonable opportunity, whether that is the date of termination or the commencement of garden leave. It will depend on the circumstances and the risk the (ex)employee may pose to the business. It will minimise the risk that the (ex)employee can steal confidential information, cause damage to the employer's systems or poach other employees.
- Consider whether to enforce the Notice Period
It is a common misconception that when an employee resigns with the intention of leaving immediately (i.e. without giving the contractual notice), perhaps to join a competitor, there is nothing the employer can do because you cannot force a person to work for you. In fact, when an employee resigns and indicates he/she is leaving without giving the contractually required notice, the employer (depending on the terms of the contract) may have the right to ‘enforce’ the notice period, usually through a ‘garden leave’ clause. This can be very useful where it is important to keep the employee from immediately joining a competitor, though the employer will have to continue paying the employee during the notice period.
- Identify the "leaver" provisions in the contract of employment and ensure the (ex)employee, as well as the business, is aware of the obligations
A failure to enforce such provisions may, in certain circumstances, amount to a waiver and may prevent an employer from enforcing the provisions at a later date. Notifying a leaving (ex)employee as to the existence of his or her contractual obligations and affirming the business's intention to enforce them, can act to discourage the (ex)employee from breaching his or her obligations. Additionally, writing to the (ex)employee’s new employer to put it on notice of any post termination restrictive covenants contained within the (ex)employee’s contract should be considered.
- Identify any confidential information the (ex)employee may hold and take steps to arrange for its return
(Ex)employees may have particular obligations in their contracts to return, and undertake not to use, confidential information belonging to the employer. This may relate to confidential financial information, sales figures, profit margins, customer lists and such like. All employees are also under a common law duty not to use "trade secrets", which is a narrower category. Steps should be taken as soon as possible to identify and recover the information, whether it be documentary or electronic, and arrange for it to be deleted from any devices used by the (ex)employee that are not within the employer's control. All devices belonging to the employer but located off-site (such as laptops and mobile devices) should be returned. Taking these steps early in the process will reduce the risk that confidential information will be leaked by the (ex)employee to competitors, or used by the (ex)employee for his/her own purposes.
- Protect sources of information
The employer will invariably have many sources of information which were used or accessed by the (ex)employee - these are likely to include PCs, laptops, tablets, mobile devices, electronic document storage systems and servers, as well as hardcopy filing systems. It is important that such sources of information are immediately retrieved from the leaving employee (preferably at the point of resignation) and not automatically "cleaned", deleted or destroyed when the (ex)employee leaves the business. It is not uncommon for (ex)employees to leave a trail of evidence which indicates that they have accessed, copied and/or leaked confidential information, or deleted information which may be damaging to them, particularly in the weeks leading up to their departure. This may be by way of forwarding documents to personal email accounts, frantically copying documents they intend to steal or deleting emails/documents before they leave the premises. These sources of information can provide extremely useful evidence against (ex)employees which can be used to strengthen the employer's position and avoid court proceedings, or used to the employer's advantage in court proceedings. It is prudent to replace any such devices with ‘clean’ versions whilst the employee serves out any notice, so as to avoid any risk of the employee arguing he/she has been deprived of contractual benefits.
- Communicate with staff
A key risk when losing a critical employee to a competitor is that they may approach other employees to leave with them. As well as making the employee aware that this is not acceptable and that it may be a breach of his or her contractual obligations (see point 3 above), it is also worth being proactive in communicating with staff to discourage poaching and ensure they report unlawful advances by the (ex)employee to the business. It may also assist the business in retaining staff and listening to any concerns that staff may have.
- Take action against the (ex)employee if there is evidence that obligations have been breached
Any delay on the part of the employer to enforce contractual obligations and other legal rights may prejudice its ability to do so at a later date. Time is of the essence in these situations and employers should act quickly and involve their legal teams early in the process. Action can also be taken against competitors who may be encouraging or inducing the (ex)employee to breach his or her contractual obligations. Early and strong action to enforce contractual rights and remedies can often avoid court proceedings being necessary at a later date.