How to protect your business from exploitation by employees - Part 1

All employers should consider the following:

1. It is important to include relevant restrictions on the employee in their employment contract and shareholders agreement (if applicable). Important provisions include the following: a. Intellectual Property clause – this should state that all intellectual property created during the course of their employment is owned by the employer and that the employee assigns all such rights to the employer. It is also a good idea to include a further assurance clause such that the employee assists the employer, where appropriate, in registering/ protecting such intellectual property. The employee should only be entitled to use such intellectual property during the course of his employment and not otherwise. b. Confidentiality clause – this should clearly define the nature of confidential information and should include all trade secrets, know-how and database information. The employee should be restricted in using this confidential information such that it is only used in the course of his employment and for a defined purpose. The employee should also be restricted in relation to the disclosure of this information and to whom he can disclose it to. c. Outside Interests clause – this restricts what the employee can do outside the course of his employment. It generally prevents the employee having any other business interests, whether directly or indirectly, outside his employment. This clause can be diluted so that the employee can have other business interests but not in relation to competing businesses. The nature of this clause is determined by the facts of each employee appointment and there is no hard and fast rule on restricting outside interests. 2. As stated previously it is important to have an express employment contract that includes relevant restrictions on the employee. Where this has not happened then the employer may, in certain circumstances, rely on implied restrictions, which are implied by statute and/ or case law and include the following: a. Duty of fidelity - Every contract of employment contains an implied term that the employee will serve his employer with good faith and fidelity. This includes a duty not to (i) disrupt the employer's business; (ii) compete; (iii) solicit the employer's customers; (iv) entice employees; and (v) misuse the employer's property. It also includes a duty to disclose wrongdoing. Finally there is also a duty of confidentiality. b. Duty to obey lawful and reasonable orders - The employee has a duty at common law to obey the lawful and reasonable orders of the employer.

The author, Christian Browne is a business solicitor and the Managing Director of Summerfield Browne Solicitors (http://www.summerfieldbrowne.com). Christian Browne is also a legal advisor with the Institute of Directors in London. Christian Browne can be contacted on (0044) (0) 1858 414284 or by email on cbrowne@summerfieldbrowne.com

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