The resignation of a senior employee may spark strong emotions but the focus must quickly move to the impact the departure will have on relationships and business prospects. The first steps taken in response could make all the difference
Contracts for senior colleagues will often contain post-termination restrictive covenants that are designed to protect the business from unlawful competition and improper use of confidential information. Further background is available here.
However, once an employee has resigned, how should the employer respond and what steps are available to ensure that the protection that exists on paper actually becomes a reality?
1) Trigger any garden leave provision
Garden leave is an express contractual entitlement that allows the employer to instruct the employee to remain at home 'in the garden' for the duration of the notice period. Employers worried about a departing employee continuing to have access to its clients and confidential information for the duration of their notice period should trigger this clause at the first opportunity. The benefit of garden leave is that the individual remains employed by the business and can still be called upon to answer any hand over questions but will not have access to systems, email or confidential databases. Note that there is no general implied right to place an employee on garden leave and employers must therefore ensure that the appropriate clause is inserted into the contract of employment.
The effect of garden leave is to keep the employee out of the market place and away from the employer's confidential information and customers for the duration of their notice, even where the contract does not contain any non-compete clause. It also gives the employer the chance to take stock and carry out some initial investigations.
2) Don't breach the contract!
As a general rule, a party that has acted in breach of contract is no longer able to rely on the terms of that contract for its own benefit.
Using garden leave as an example, putting an employee on garden leave where there is no contractual right to do so is likely to invalidate any restrictive covenants and express confidentiality provisions.
3) Investigate the employee's conduct
As soon as it becomes clear that an employee has accepted employment with a competing business, employers should instruct their IT department to investigate the employee's account to identify whether any confidential material has been downloaded or emailed to an inappropriate destination. An audit of any hard copies of confidential information should also be completed.
The employee should be asked to return any hard copy materials that might be in their possession, including copies, and to confirm that they have/will delete any company related material from their home computers.
The investigation should also consider recent emails that have been sent to customers and contacts to see whether the employee has taken steps to try and poach business to their new employer.
4) Take legal advice
Where the investigation identified in 3) above reveals that the employee has taken steps to remove confidential information or poach business, professional advice should be obtained without delay. The remedies that are available in the civil courts are time limited and unnecessary delays could prejudice the available options and result in evidence being lost. Note that competing activity that has taken place during the course of employment could be actionable even in the absence of any post termination restrictions.
5) Avoid early release
A request from an employee to be released early from their contractual notice obligations should be treated with caution until the identity of the new employer is known. A court may look unfavourably on an employer who seeks the enforcement of covenants having knowingly allowed an employee to join a competing business earlier than might have been the case. The same principle holds true for an early release through payment in lieu of notice - be sure to establish the identity of the new employer before committing to either route.
Employers who are handed a resignation without notice by an employee who simply walks away from the business may be entitled to an injunction (see remedy below) if the employment contract has the benefit of a garden leave clause.
What remedies are available?
Having secured reasonable restraints within the contract and having established that the employee may be in breach, the following remedies are potentially available:
Injunctions to enforce post termination restrictions
Employers can apply to the High Court for an injunction to stop the employee from acting in breach of their restrictions. For example, it is possible to obtain an injunction that prevents an employee from taking up employment with a competitor in breach of their non-compete obligations. Similarly, courts will issue injunctions to prevent non-solicitation and non-dealing of customers and to prevent the poaching of staff.
Injunction to enforce garden leave
Employees who refuse to work their notice period can be compelled to do so through an injunction to enforce a garden leave provision. Where a business is very fast moving with pricing and other confidential information changing rapidly, this may be all that is needed to ensure data security and prevent unlawful transmission of that material to a competing business. It is also a very useful tool where the contract does not contain other restrictions or those restrictions are considered to be unenforceable.
The unlawful use of confidential information provides the competing business with an unfair advantage and a 'springboard' in its development, particularly if it is a new business. Courts can impose this type of injunction to prevent or stem customer or staff defection to the former employee's competing business and to stop further misuse of and the return of confidential information. It is therefore a useful addition or alternative to other injunctions, preventing continued misuse of confidential information.
The overriding message to anyone faced with a competing former employee is to act swiftly and take urgent advice.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.