The Perils Of Poaching
WORDS: Brendan Nyst PHOTOGRAPHY Supplied
Q: One of my employees has gone to work for my competitor, and I’m worried he might be sharing my business information with them. What are my rights?
Whilst a robust employment contract is the best weapon in protecting against this kind of conduct, the absence of a contract isn’t necessarily fatal
A: The best place to start is with a careful review of your departing employee’s employment contract. A well-drafted employment contract usually contains various clauses which place various obligations or restrictions on the employee with a view to protecting their employer’s business, even after they have moved on to supposedly greener pastures. The clauses will usually include confidentiality provisions, clauses requiring the employee to return or destroy nominated electronic and hard copy records following their departure, non-solicitation clauses, and restraint of trade provisions.
Often, employees are not only made privy to sensitive commercial information and know-how as an incident of their employment but are also exposed to the business’s valuable contacts and client relationships, which will sometimes enable them to create and foster strong ties with their employer’s long-term clients. Of course, that is often encouraged while the employee remains in the job, but it can pose problems if they decide to walk out the door, especially if they are headed into the welcoming arms of a business competitor. Accordingly, non-solicitation clauses (which prevent former employees from attempting to solicit work from clients after they leave) and restraint of trade clauses (which limit a former employee’s ability to work for a competing business for a short period after their employment ends) are important safeguards for any business.
Historically, the courts have taken a rather careful approach to the enforcement of restraint of trade clauses. The general attitude is that restraints will only be upheld insofar as an employer can prove them to be reasonably necessary to protect the goodwill of the business, and courts often apply a hard-line assessment to the determination of that issue. As a result, many relatively standard restraint of trade clauses fall short of satisfying the courts of reasonable necessity. Non-solicitation clauses can be equally as difficult to enforce because proving that a customer left because of solicitation, and not of their own accord, can prove to be an onerous evidentiary hurdle to leap. Nevertheless, regardless of whether the employer intends to attempt to strictly enforce their contractual rights or not, the inclusion of such clauses in employment contracts can be an important element in discouraging undesirable conduct.
Whilst a robust employment contract is the best weapon in protecting against this kind of conduct, the absence of a contract isn’t necessarily fatal. Employers do have the benefit of certain common law and statutory protections aimed at preventing employees – including those on their way out the door – taking advantage of their good graces. It is implied as a matter of law that employees owe certain duties to their employers, including a duty to observe good faith and fidelity, a duty to refrain from competing, a duty to maintain the confidentiality of information, and a duty to relinquish the employer’s property upon resignation. In addition to those common law duties, sections 182 and 183 of the Corporations Act also prohibit employees from improperly using their position or information obtained through their employment to gain an advantage or to cause detriment to their employer’s business. These employment duties provide employers with valuable protection against any mischievous employee who may have desires of competing with their former boss or using their information to help a competitor.