The importance of maintaining your business’ competitive edge is particularly acute in today’s challenging market.
That edge can be compromised when you lose key senior-level staff to your competitors.
Not only are you losing people of value, they are taking with them information about how your business functions, its strategies to compete, information about your customers and other trade secrets.
This is your property, and it is essential to the wellbeing of your business. Your employees will have obligations not to disclose your trade secrets and other confidential information to your competitors, and those obligations will continue when they leave your employment. But are those protections sufficient to safeguard your competitive advantage?
Very arguably, not.
Is it realistic to expect your ex-senior executives and other key staff to carry out an equivalent function for one of your competitors, without using what they know about your strategies and plans for the future?
While they may, or may not, overtly disclose that information to your competitor, they will almost certainly carry out their duties with reference to their understanding of your plans and strategies – how could they not?
It will be very difficult, if not impossible, however, for you to detect whether your ex-employees are using your trade secrets for the benefit of your competitors and to the detriment of your business.
In that case, the confidentiality protections the law affords you will be of minimal, if any, value.
Can you protect yourself and your business against this risk?
You can start by ensuring that you have restraint of trade provision in your employment agreements for senior and key staff.
An enforceable restraint of trade will provide you with some degree of comfort that, during the restraint period, the ex-employee will not be using your trade secrets for the benefit of your competitor.
That is, in itself, valuable, but the true value of the restraint of trade is likely to be in the time it gives you to adjust strategies and plans, to bring forward initiatives, and to take other steps to minimise the risk that an ex-employee disclosing your confidential information and trade secrets to competitor will be damaging to your business.
There is popular perception that restraints of trade are unlawful. That perception is not correct.
The law considers that restraint of trade clauses are unenforceable for being anti-competitive unless the employer can demonstrate that restraint is reasonably necessary to protect the employer’s property (including trade secrets and confidential information).
The key is to maximise your chances of court finding that the restraint of trade is reasonable and enforceable.
It certainly helps where the restraint clause seeks to restrain senior employee whose grasp of strategic information and trade secrets is greater than that of more junior employee, or an employee who is engaged in narrow part of your business.
But beyond the level of seniority, the key to an enforceable restraint of trade is making sure you structure the restraint in keeping with guidance from the courts on what amounts to reasonable restraint.
This includes:
• tailoring the restraint to match the interests you are seeking to protect – don’t rely on standard restraint clauses;
• ensuring that the length of the restraint is not onerous, but is sufficient to provide you with adequate protection (three to six months is often considered reasonable for senior employees);
• ensuring that the geographical reach of the restraint reflects the geographical scope of the employee’s duties and the area in which the business operates;
• have the employee sign separate acknowledgement that he or she had an acceptable opportunity to take independent specialist advice specifically on the terms of that restraint.
While these and similar provisions in your employment agreement will not guarantee that your restraint will be enforced, they will certainly improve your chances.
David Hood is senior associate with Simpson Grierson.
