Could your employee be your competitor? | Pitt & Moore, Lawyers in Nelson
Could your employee be your competitor?
As business becomes more competitive, clients, confidential information and trade secrets become increasingly valuable.
More than ever, business owners need to think about protecting their businesses from the competitive actions of ex-employees.
As a general principle, an ex-employer cannot prevent an employee continuing to use their personal skills to earn a living. However, an Employment Agreement can contain provisions which an employer can be justified in using to protect what they have worked hard to develop.
Trade and Solicitation Restraint
Provisions such as these commonly prevent the ex-employee engaging in competition with the employer or “poaching” the employer’s clients. Trade and Solicitation Restraints are unusual because they are only enforceable if the employer can show they are reasonable. Generally restraints will only be enforceable if they are limited as to:
- Duration (a maximum of 12 months and commonly no more than three to six months);
- Area (for example, the territorial area of the Nelson City Council); and
- A particular area of business (for example, sale of photocopiers).
Whether or not the restraint and these limits are reasonable is viewed with regard to the particular nature of the business interest the employer is entitled to protect.
It is an implied term in every Employment Agreement that the employee must not disclose the employer’s confidential information whilst employed by the employer or after their employment ends. However to avoid argument, an Employment Agreement should always contain an express provision in respect of confidentiality specifying the types of information that are confidential.
Where a key employee has resigned, a garden leave provision allows the employer to require the employee not to attend work on pay during their notice period. If the employee is going to work for a competitor, then the employer can keep the employee out of the employer’s workplace where they would otherwise continue to have access to clients and commercially sensitive information.
Intellectual Property and Copyright
It is useful to include a clause providing that all intellectual property such as trademarks, inventions, patents, ideas and concepts developed or created by the employee during the course of the employment are the property of the employer even after the employment has ended.
These provisions need to be carefully drafted if they are to be effective and enforceable. Sometimes it is necessary to tailor the provisions to the position or the employee concerned. However proper and careful consideration of these provisions can provide real benefit, particularly in an era where employees can download electronic information on compact devices very quickly.
If you are at all in doubt about your contracts, or have any employees for whom these areas may be of particular significance, you should have an employment law specialist review your documentation.
Pitt & Moore is a full service law firm. We can help you with all aspects of employment law and resolution of employment problems.
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Disclaimer: This article should not be used as a substitute for legal advice tailored for your specific circumstances.