In order to protect their business interests, employers will often attempt to include clauses in their contacts of employment that restrict who a former employer can do business with, whether they can establish a business, what information they can use and any rights the employer will continue to have in intellectual property.
Restraint of trade clauses
Where a former employer anticipates competition in their market from a former employee, they may include contractual restraints on their business activity that last for a period of time beyond the end of their tenure. Likewise, when a business seeks to acquire a business entity in order to enter a new market, that sale may be subject to a clause restricting the seller’s trade for a period of time. A former employee may also be prevented from soliciting clients and other employee from their former employer.
A court has discretion to determine whether a contractual provision that restricts trade is reasonable and not contrary to the public interest in free trade. In essence, the contractual provision should be proportionate, that is, no more that necessary to protect the employer’s business interests. A court will also consider if there has been a fair exchange in terms of value paid for having the clause included. A court will also take into account the common trade practice in the specific industry, and whether such clauses are commonplace in that industry.
In order to prevent sensitive business information being aired in public, an employer can subject an employee to a confidentiality agreement. A common example is non-disclosure of trade secrets, where an exiting employee cannot use carefully guarded knowledge from their former employer to compete against them.
If a signatory to a confidentiality agreement is likely to beach it, the other party may seek a permanent injunction, with added damages. If the threat of disclosure is immediate, a court can award a temporary injunction. Where profits are made by a party as a result of utilising trade secrets in breach of an agreement, a court can order recovery of those profits to the aggrieved party.
The default rule for intellectual property created by an employer in the course of their employment is that the intellectual property belongs to the employer. However, the employee may still be able to claim a “moral” right to be recognised as its creator, and object to replication or adaptation of their product. These are known as paternity rights, and will exist unless waived through contractual agreement.
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In order to be effective and not subject to negation through court action, it is important to consult an Employment Solicitor when contemplating inclusion of restrictive covenants, confidentiality agreements and clauses relating to intellectual property in contracts.
At Lewis Nedas, our Employment Law Solicitors have over 25 years’ experience advising and representing national and international companies. Our Employment Lawyers have joined the Office Essential Network, which is a specialist organisation aimed at assisting young start-up businesses requiring advice on employment issues, including restrictive trade covenants, confidentiality agreements and intellectual property clauses.