Protecting Your Business Through Employment Agreements

Author: Lehanne Bleumink, Gold Seal HR Services Manager.

Employees have ready access to their employer’s confidential and proprietary information during the course of their employment. For an employee, this information is important in order to carry out their duties. It may be tempting for an exiting employee to improperly retain confidential information, as they believe it will be useful in their new position. Many employers are concerned about the damage an employee could do if they were to take the company’s confidential information with them to a new employer.

There should be clear obligations in the contract of employment with regard to post-employment restraints; and how confidential information is to be treated during employment and after. In circumstances where an employee leaves (whether they have been terminated, or they have resigned), we highly recommend providing them with:

  • a letter outlining the reasons for the termination; or
  • acceptance of their resignation, and a reminder of their obligations with regard to confidentiality and post-employment restraints.

Confidentiality
It is important that employers put in place such measures to protect their confidential information; and to prevent employees from copying, removing or disclosing this information. Such measures include:

  • A properly drafted employment agreement which clearly defines confidential information and states that the employee can not disclose or use it without consent.
  • Reminding an exiting employee of their obligations regarding confidential information.
  • If required, place the exiting employee on garden leave (if permitted under the employment contract).
  • If possible, or necessary, examine the exiting employee’s emails and / or analyse their hard drive to determine whether any confidential information was copied, created or emailed to a personal email address.
  • Immediately seek legal advice where confidential information has been taken.

These clauses should be written to survive the termination of the employment relationship and to ensure that an ex-employee does not use the confidential information or intellectual property of the business to its detriment. While an employer cannot restrict an ex-employee from obtaining work, they can legally restrict the individual from using any information in future employment relationships. This period is not restricted.

Post-Employment Restraints
You can also use restraint clauses to protect your business. Restraint clauses attempt to regulate an employee’s conduct while they are still employed or a former employee’s conduct once the employment relationship has ended. Some common restraint clauses that may be included are:

  • Restraining the employee from engaging in work for your competitor in a particular geographic area and a particular period.
  • Restraining a former employee from disclosing confidential information after the expiry of the employment relationship.
  • Restraining an employee from poaching clients, or any other employee to work with your competitor.
  • Directing your employee to go on garden leave during their period of notice.

When the employee is on garden leave, they continue to be employed and paid, but you can direct them not to attend work or contact any of your clients or employees. This way the employee will be bound by the duty of fidelity and good faith. This duty precludes the employee from soliciting clients and employees of their employer, as well as working for a competitor during the notice period.

Attempting to put an employee on garden leave during their notice period, without a clause in the employment agreement may be in breach of the agreement. If challenged, a Court will need to determine whether there is an obligation on the employer to provide meaningful work to the employee.

There is a misconception that post-employment restraints only apply to restrain an employee who has resigned. The law is that if the clause is reasonable, then it can be enforced against a former employee, regardless of whether the employee resigned or was terminated, including termination for redundancy.

Although a Court does not want to restrict a person’s ability to earn a living, they will protect an employer’s interests where there is clear evidence of breach of reasonable provisions. Simply because an employment agreement contains a restraint provision, does not necessarily mean it is enforceable. An employer is not entitled to protect themselves against mere competition from a former employee; however, the Courts will enforce a restraint if it is to protect the legitimate business interests, as long as the restraint goes only as far as necessary.

In determining whether the restraint is reasonable, the Court will consider the following:

  • The geographic area of the restraint, and the length of time.
  • The types of activities to be restrained.
  • Whether the restraint reasonably protects the employer’s legitimate business interests.

Restraints on poaching other employees and clients are the easiest to enforce. It can be more difficult to stop a former employee from conducting or working in a business in competition to your business. Restraints often involve a combination of a geographical restriction and a time restriction. Restraints which have only one combination, or which are broad are likely to be difficult to enforce as they may be considered ‘unreasonable’.

A cascading provision will give a Court a variety of combinations of restraint to choose from, this allows the Court to ‘read down’ the provisions to whichever is ‘reasonable ‘and avoid the whole clause being held unenforceable. If the clause is challenged, the onus is on your business to prove the reasonableness of the restraint.

From a legal perspective, every individual has the right to gainful employment and as such a restraint must not be unreasonable in its restriction of this right.

For assistance on any of your HR/IR requirements – call Gold Seal on 03 9510 5100 or email HRServices@goldseal.com.au

2018-08-16T15:05:28+00:00August 16th, 2018|Articles, HR News, News|