Employment Law: how to protect your customers and confidential information

Alex Jones, Managing Director of 365 Employment Law, has some valuable advice for employers.

I am often approached by employers in fear of lost revenue after a senior employee has left, as customers often follow those employees. The employer’s ability to protect their customer base is often better if they have well drafted post termination restrictions. Those restrictions must be reasonable to be enforceable. My task is often easier if the employer comes to me with a contract that I have drafted (or even one that another employment lawyer has drafted).

When I am approached by an employer in these circumstances, they often have preconceived views of how the courts deal with these types of restrictions. Sometimes they have drafted the restrictions themselves. These range of views are often polar opposite, with the stance either being that covenants are never enforceable or that courts will always enforce them. Neither position is correct.

Contractual covenants

The starting position in law is that restrictions are unenforceable, as they restrict livelihood, but courts will enforce if they are reasonable and go no further than is necessary. There are four main types of covenants that employers should consider – non-solicitation of customers, non-solicitation of staff, non-competition, and confidential information protection.

Non-solicitation of customers

This type of restriction is actually as it says, it stops an employee, for a set period, from attempting to secure business from the employer’s customers. If the set period is too long, it won’t be enforceable. Typically 6 to 12 months post employment are as long as would normally be reasonable, although there can be exceptions.

Non-solicitation of staff

This type of clause is similar to the customer one. If an employee leaves, they cannot recruit staff to work for them/their new employer for a set period of time. Six to 12 months would be the normal length of time.

Non-competition

These clauses are the most controversial as, for a set period of time, the employee is prevented from competing in their industry, within a set geographical area. For that reason, unless they are very defined, or the employee is senior and/or in a niche industry they are unlikely to be enforceable.

Confidential information

This type of clause is almost always enforceable, as it stops an employee from using the confidential information of the employer (e.g. customer and price lists), from being taken and used. A comparable duty, the duty of good faith, is implied into every contract of employment. If an employee, either in breach of any contractual or implied duty, takes and uses confidential information, then they can be stopped by the employer from using that information, by way of an injunction, and the employer may also have a claim in damages for losses.

I am often asked which clauses are enforceable, and which are not, and there are no real definitive rules, but there are patterns:

1. A restriction on non-solicitation for employees will rarely be enforceable if longer than 12 months;

2. The same is true of other employees;

3. For both of these, a back date is crucial eg no solicitation for 12 months for any customers that they have had personal dealings in the 12 months prior to departure;

4. Non-compete clauses in the digital world are becoming increasingly harder to enforce. If you have a geographical area, how do you define that? Unless the customers are all very local eg a hairdresser, or the company has limited national or regional competition, then a non-compete will only really be a deterrent;

5. It is always easier to bring proceedings, or persuade an employee’s new employer to settle a claim if there are enforceable covenants.

All is not lost if there are no covenants, or some of the covenants are unenforceable, as the implied duty of good faith is present in every employment contract. If an employee uses their position to springboard their future employment i.e. give themselves/their new employer an unlawful head start, that they wouldn’t have got in the open marketplace, then that is actionable. This usually involves either the taking of customer lists, or the solicitation of customers whilst still employed. Any employer taking new employees on, should always make clear that such theft is unacceptable.

If you are an employer, who now has a percentage of your workforce remote or hybrid working, you should be even more alive to the potential for the theft of confidential information, and the losses it can cause you.

Employers should also always be alert to any issues involving departing staff, and always take proactive advice in how to deal with these issues.

365 Employment Law Solicitors

Tel: 01903 863284

ajones@365employmentlaw.co.uk

www.365employmentlaw.co.uk