Looking after your IP in employment relationships

Jo Douglas walks you through the process of protecting your intellectual property and confidential information by including a restraint of trade as part of your employment process.

Many businesses spend a lot of time and effort nurturing client and supplier relationships. You might have developed systems and processes that help your business be more productive or to give it a competitive edge. Taking care of that investment is important. 

Some, but not all, employees will have access to this commercial information in order to perform their roles. Those that do perform those roles, for example those in sales or management positions, are in a position of trust with your information and systems.    

That is fine and essential while they are employed with you, but you do need to consider what might happen when the employment relationship ends. Will they take your trade secrets with them?   

If this is a possibility, you can consider putting in place contractual terms which protect that information from the outset. That might include a clause that provides for a post-termination restraint of trade, defining who owns the intellectual property and making it clear what you regard as your confidential information which cannot be used or disclosed other than for your business purposes.  

You might also consider your information systems and how they are set up and monitored.   Information can very easily be copied these days but often it is possible to trace it if this happens. Monitoring can be particularly important towards the end of the relationship if you know that an employee is looking to make a move elsewhere – particularly if they are moving to a competitor.   

The offer of employment – mutual exchange of benefits

All employees have the right to take time to consider a proposed offer of employment and to take advice. This is even more important when there is a restraint of trade proposed.   

The employee may ask that you modify the terms of that restraint of trade and you may need to negotiate over the exact terms. Make sure that once you and your employee have agreed on the terms of the restraint of trade clause that the final employment agreement is signed by both the employee and by an authorised manager or director of the business, and returned to you before the employee starts work.  

Keep a copy of the agreement somewhere safe and secure. You also need adequate documentation to show that you have advised the employee of their right to take independent advice.   

Also consider if the salary or remuneration you are providing the employee is adequate for the restrictions you are asking the employee to adhere to after the employment relationship is entered into and after it ends. 

If you are thinking about introducing a restraint of trade part way through the employment relationship, you must offer some benefit in exchange for the new restrictions you are asking the employee to accept.  

When will a restraint of trade be unenforceable? 

A restraint of trade is a contractual provision that restricts the activity of employees after the termination of their employment. Because of the restrictive nature on an employee’s right to potentially gain other work and earn a living, a restraint of trade provision must be drafted to be only so broad as to protect your company’s legitimate business interests. 

Sometimes we hear the phrase “it’s not worth the paper it’s written on.” It is true that many restraints of trade will not be enforceable because they have been drafted much more widely than is necessary to protect a company’s legitimate interests. It is against public policy to prohibit normal business competition and so you cannot simply prevent a former employee competing with you, unless you can point to a legitimate business interest that you are entitled to protect.   

Employers often make the mistake of having a lawyer draft a restraint of trade clause which is included in a standard employment agreement template for all employees across the business.  For junior employees without access to confidential information or special client or supplier relationships, these clauses may not be enforceable.    

An effective restraint of trade must be drafted for an individual employee considering the role that they will be doing, the location of that role, and the business interests that the particular individual has access to.  

If your agreement is set up carefully and correctly, you will have a much better chance of protecting your trade secrets when the relationship ends.    

Jo Douglas is a partner at Douglas Erickson, employment lawyers. Email [email protected]. This article is written for the purposes of providing general information only and is not intended to be legal advice.