Senior executive leaving? Six steps to protect your business
When an executive or key strategic employee departs your organisation, protecting your organisation's business interests is paramount.
If a departing employee misuses crucial business information, such as proprietary technology, bespoke coding or a valuable client list, the legal ramifications can become complex and the potential economic loss significant. The challenges are starker if they have left to join a rival organisation.
However, you can take steps to minimise any potential damage to your business.
1. Check the small print
Before this situation arises, take the time to prepare and review your employee contracts. If there are appropriate restrictive covenants and confidentiality provisions in place to prevent employees taking and misusing company information, and/or preventing them from working in competing activities for a set amount of time after their exit, this will give you a head start.
However, restrictive covenants must be drafted with great care. The wording - and reasonableness - of a restrictive covenant is of utmost importance as it could, ultimately, affect how a court decides on the enforceability of the restriction in question. Bear in mind that courts are not permitted to re-write or add wording into an ambiguous or badly drafted clause. You should also regularly review restrictive covenants to check that they reflect any changes in the employee's role or their spheres of influence or in the wider organisation.
If a senior individual indicates that they will be leaving, and, in particular, if they are intending to join a competitor, check their employment contract and put them on notice before they leave of any restrictive covenants and confidentiality obligations in their contract. They should be reminded, also, of their broader express and implied obligations to not do anything that harms the business. You may consider asking them to sign specific undertakings not to use certain material or data. This will provide additional protection, if signed, giving you a right to claim for a breach of those specific undertakings should the individual go on to use the material. These steps may be enough to prevent a later breach.
2. Gather the evidence
If there is a risk that a departing senior individual intends to take trade secrets or other important confidential information with them, you should check if any confidential information has, or may have, been taken.
Create a checklist and include items such as client data, designs, formulations, codes, strategy documents and other relevant documentation. Your legal advisors can help at this stage by instructing IT experts to check whether specific material has been despatched outside the company (by email, or by other means, such as onto a memory stick). It is vital to preserve these details as cases involving misuse of confidential information often turn on the quality of this type of evidence.
3. Manage reputational risks
Consider instructing a law firm early to advise on reputation management. They can advise the extent to which you can monitor social media activity (for example re-engaging with old contacts, or a LinkedIn activity "splurge") to gain advance warning of departures.
Separately, if the departure is particularly newsworthy – or if the former employee makes untrue statements about your organisation – think seriously about engaging a reputation management specialist to deal with allegations that may reach the press.
4. Aim for early resolution
If you suspect foul play, then you may, depending on the evidence, have a claim for breach of confidence, either by way of a breach of a confidentiality clause in the employee's employment contract or at common law. In part, this will depend on the type of information in play – if it is a true "trade secret" then protection is more likely to be available than if it is "mere confidential information", which although confidential to the original company, may have become part of the ex-employee's skill and knowledge. Analysis of the type of information involved will form a major part of any court proceedings involving allegations of breach of confidence.
Initially, however, consider approaching both the ex-employee and their new employer to see if the situation can be resolved without going to court, for example by way of entering into undertakings not to use the information. This will put the new employer on notice that the ex-employee is being pursued for misuse of confidential information, and depending on their attitude, may assist in preventing the ongoing misuse of the information.
5. Consider legal proceedings
If an early resolution is not possible, and you believe that there has been a breach of confidence, then you may consider applying to the court for an injunction to prevent the ex-employee from using, or continuing to use, the relevant confidential information.
If the information is already being used to your company's detriment, you can apply for an interim injunction which can be granted on an expedited basis as a "holding" measure to preserve your organisation's information, pending a more detailed enquiry as to the nature of the material and the rights of the ex-employee to that information. If at a final hearing (which would be sought on an accelerated "speedy trial" basis), the court rules that there has been a breach of confidence, then an interim injunction can be made permanent, both against the ex-employee and against the new employer, if that employer ought reasonably to have been aware that the information was confidential.
6. Select the right external counsel
When selecting external counsel to support you, ask for evidence of a track record in this area of the law, or indeed multiple areas of law. Aim to assure yourself that a prospective law firm can provide comprehensive support, forensic analysis and a team of specialists in the issues that matter to you.
An impactful legal team will work across the disciplines (usually the areas of Employment, Intellectual Property, Data Privacy and Disputes) to co-ordinate strategy around key departures, including managing the risks of losing confidential information or trade secrets (instructing IT experts to gather essential evidence urgently where necessary), as well as enforcing contractual rights (such as restrictive covenants) and dealing with reputational issues arising from a departure.
For an overview of how restrictive covenants work in practice, how the law may change in the future and how to navigate commonly encountered challenges related to post-termination restrictions, listen to our Work Couch podcast Business protection (Part 1): When a senior executive leaves.