Information Security: Ensuring Your Information Stays When Your Employees Leave

Employee turnover is an issue for most businesses, with the UK average hovering between 15% and 20% in most years. Although most employees are honourable when they leave, there is always a minority who will try to take business or information with them. Unfortunately, there are a number of misconceptions about the extent to which this can be prevented.

RESTRICTIONS AND THE FREE MARKET

The leading case of Nordenfelt established that the free market is a priority. This is often reduced to "restrictive covenants restrict the market and are unenforceable".

What is less appreciated is that the free market relies on a level playing field, meaning that employers and employees are free to form employment contracts, with the law expecting them to be honoured. The current trend amongst judges reveals a renewed focus on getting employees to honour their obligations, even if that means overlooking minor defects in the relevant clauses.

WHAT CAN BE PROTECTED?

For any restriction to be valid, it must protect a ‘protectable interest’ of the business. Interests recognised by the courts include:

• Trade connections with customers, suppliers and business partners
• Connections with prospective customers
• Skills of the existing workforce
• Confidential information
• Trade secrets

These can be protected by contracts, as long as the protection is within what the court sees as reasonable limits. The question of where these limits are generates most debate in practice.

Common Myths

The most common mistakes employers make are usually due to the following assumptions:

• Garden leave is enough
• It is not worth doing anything until business has been lost
• Clients have to be involved
• It is too difficult to trace what employees have been doing
• There is no point: either the restrictive covenants won’t work, or the employee never signed a contract

Employees tend to also believe these myths and often base their exit plans on them. There are also a few other ways in which employees like to mislead themselves - believing they will not be caught, or that someone else will do it for them.

Employees frequently leave themselves vulnerable by putting their faith in these myths.

Garden Leave

Garden leave can immediately contain a situation, but does not stop staff making private calls from home or mobiles, or stop them using information taken home. Experience shows that staff plan to completely remove the information they want before they resign.

Loss of Business

It is surprising how often businesses believe this myth, but it could not be further from the truth. The courts can grant an injunction if it can be shown the employee has an intention to compete, where the competition is prohibited.

Showing intention is not always difficult, as many departing staff refuse to sign an undertaking not to break their restrictions.

Sadly, many staff massage the truth about their plans, but will not commit themselves in a binding document to back up what they tell you.

Involving Clients

Although clients often provide tip-offs that there is prohibited competition, it is rare for any further client involvement to be necessary. There are a variety of ways of dealing with both legal evidence and customer relationships that can avoid damage to client relationships.

Tracing Evidence

There are many ways to detect unauthorised calls and uncover (or reconstruct) emails. Many employers find critical evidence this way, revealing activity they would never otherwise have believed was occurring. Once you have this evidence, there is little that departing employees can do to defend themselves.

Restrictive Covenants

Although it is important to have properly worded restrictive covenants, that is not the whole answer. The High Court has inherent jurisdiction to grant injunctions for breaches of common law obligations. Although not as extensive as the restrictions that can be placed in a contract, they are often useful.

There is also a common misconception that restrictive covenants never work. Admittedly, it is the job of lawyers to argue over wording, as each side battles to prove that restrictions are or are not enforceable. Such arguments, however, are often misleading: they are often only positions adopted for argument.

Employee Myths

Employees’ assumptions do not stop with the self-serving belief that they won’t be detected, or that restrictive covenants cannot be enforced.

Employees also widely believe that they can make plans with other staff, or actively recruit them to leave at the same time, although it is usually a breach of several legal duties.

Directors additionally owe fiduciary duties, which they (and possibly other senior staff) have a duty to confess their own misconduct.

The Future

The courts’ increased willingness to enforce restrictions, particularly if staff have not behaved well, has coincided with an increase in the number of employers willing to take action and is clearly linked to economic conditions. This trend is likely to continue for some time.

It is therefore worthwhile for employers to review and update the restrictions in their employment contracts, particularly for sales or other revenue generating staff and senior staff (and their assistants) who have access to useful confidential information.