Dealing with Departing Employees

It remains a common misconception that an employment relationship is one of master and servant. In reality, the relationship should be one of trust and co-operation and this should remain the case even when a member of staff makes the decision to leave. But how can you ensure the interests of your business are protected as and when an employee departs? Employment solicitor Helen Wyatt illustrates some areas of weakness for the employer in this situation.

In terms of constraining an employee who may be considering leaving to join or set up as a competitor, the employer’s armoury in terms of control mechanisms may, in broad terms, include:

1. Appropriately drafted contract terms restricting detrimental conduct both during and after employment. In terms of post termination restrictions, these must be no wider than is necessary to protect the legitimate business interests of the employer and therefore must be well thought out and well documented or they may be unenforceable.
2. Implied contract terms such as the duty of fidelity.
3. In the absence of a specific contract term, there is an implied duty of confidentiality but it extends only to highly confidential information/trade secrets.
4. A right to the return of company property.
5. Statutory protections such as those governing use of personal data, intellectual property and databases.

Despite these protections, it is not the case that employers enjoy absolute authority. The controls available are piecemeal and the best methods rely on legally binding and timely acceptance of a suitably worded contract, which does not always happen.

More stringent limitations are placed on directors and senior employees who hold positions of trust. This article only considers the limitations applicable to “ordinary” employees, not those applicable to officers or fiduciaries.

Two recent cases demonstrate some of the areas of weakness an employer may experience.

MPT Group Limited v Peel, Birtwistle and Mattresstek Limited:

MPT produces machinery for the mattress manufacturing industry. Mr P and Mr B resigned together and their employment ended on 1 September 2016. They were subject to 6 month contractual post-termination restrictions. Upon expiry of those restrictions, they incorporated Mattresstek and commenced direct competition with MPT, offering for sale, 3 machines which were similar in purpose to machines designed and made by MPT.

MPT issued proceedings alleging various breaches of contract by P and B and applied for an injunction to prevent P and B obtaining unfair advantage through misuse of confidential information.

At the hearing in respect of the application for the injunction, the question arose as to whether the employees were contractually obliged to answer questions truthfully about their future intentions when leaving MPT.

Whilst an employee is, during employment, subject to an implied duty of fidelity and that could include a contractual duty to answer questions honestly, there are limitations on the duty.

It is well known that the duty does not extend to a requirement that an employee report their own wrongdoing or that of fellow employees. In this case the duty did not include a duty to disclose details of an employee’s intention to lawfully compete in the future, i.e. after expiration of his covenants.

The weakness illustrated is that the employer cannot compel an employee to be wholly honest with it and in that event, cannot obtain the information it may need to take steps to protect itself from future competition.

Capita plc and another v Darch and others:

The Capita case involved former or departing employees setting up in competition with Capita, allegedly in breach of various contractual and other legal duties owed both during and after employment. In its application for injunctive relief, Capita faced the following problems:

1. What constitutes company property?
2. Breadth of drafting of post termination restrictions.

Capita had sought an order that named defendants forward to them copies of all emails that they had received into any personal email accounts from any Capita email account (including their own). This order was sought on the basis that the information contained in such emails were the property of Capita. One of the reasons for refusal of the application was that information is not recognised by the law as “property” and that a purely proprietary claim to the content of the emails was misconceived.

It was noted that a principal is entitled to require production by an agent of documents relating to the affairs of the principal, but this was not the basis on which Capita requested the documents.

The weakness highlighted is that to ensure that company information is protected, specific contractual clauses need to be present, including an obligation that all company information within the control of the employee, wherever it is located, must be returned on termination of employment. An employer cannot compel return on the basis that information per se, constitutes company property.

The Capita case was also a reminder that post termination restrictions will only be enforceable if the employer has a legitimate proprietary interest that it is appropriate to protect and the protection sought is no more than is reasonable having regard to the interests of the parties and the public interest. The judge commented that in relation to a covenant that sought to prevent an employee solicitation of clients “about whom the employee becomes aware or is informed of” in the course of employment may be too wide. In relation to a covenant preventing poaching of employees, the judge was of the view that defining restricted employees as those “likely to be able to assist or benefit a business in or proposing to be in competition with the employer” would also be too wide.

The weakness illustrated is that post termination restrictive covenants need to be well thought out, appropriate to their context and enforceable at the time they are entered into. Too often, employers seek blanket restrictions in contracts which go beyond what is reasonable.

The cases also serve as reminders of the following:

1. When alleging breach of a legal obligation against a former employee, it is for the employer to prove its case against the employee. Allegations and suspicions will not be sufficient to achieve this. Evidence is required.
2. Making a decision to set up in competition or planning to do so, it not unlawful. Preparation for the purposes of competition which in itself, does not harm the employer may also be lawful, depending on the specific facts of each case.

In summary, an employer is not in a position of total control over the future actions of an employee. The baseline position is that there are surprisingly few limitations on departing employees in the absence of express and legally binding contractual provisions.

To discuss the topic covered in this article or any other employment matter, please contact Helen Wyatt or your usual Keystone Law contact.