If your best and brightest employees leave your business, they could they take valuable confidential information, know-how and intellectual property. So how can employers protect these assets?
To safeguard your business when an employee leaves, make sure you have a comprehensive written employment agreement between you and each employee, to protect confidential information and intellectual property. Include a restraint of trade in the contract. Also limit your employee’s access so that they can only access confidential information that is relevant to their role and explain departing employee’s obligations in an exit letter.
Employment agreement – intellectual property rights
Employees often create or access intellectual property. Some intellectual property rights are clear and automatic under general law or legislation. Other areas are unclear and should be addressed in an employment agreement.
Copyright – Copyright Act 1968 (Cth)
If a ‘work’ (artistic, literary, musical or dramatic) is created by someone in pursuance of his or her employment, or under a contract of service, it is generally the employer’s property.
If there is no employment contract, then the employer and employee may dispute what intellectual property was created in pursuance of employment, as distinct from intellectual property created by the employee outside of the employment.
The employment contract should set out that title to and ownership of intellectual property in all material created by the employee in the course of or in connection with the employment vests in the employer. The employee assigns this intellectual property rights to the employer.
Designs – Designs Act 2003 (Cth)
Designs created in the course of employment or under a contract will belong to the employer and will be registered on the designs register in the employer’s name. It is prudent to confirm this in the employment agreement.
A range of inventions can be patented, including appliances, devices and computer-related inventions. The Patents Act 1990 (Cth) does not expressly transfer patents to an employer when created ‘in the course of employment’. The employment agreement can include that the employer is entitled to apply for patent protection for an invention by an employee, if invented in the course of employment.
Other intellectual property, including trade secrets and confidential information, has some protection under common law and equity. It is not possible, however, to prevent an ex-employee from making use of his or her general know-how after leaving the business.
Employment contract – confidential information
An employee has general law duties not to use or disclose confidential information obtained by virtue of the employment relationship in any way which benefits the employee or a third party. It is wise to reiterate this in the employment agreement.
Employment contract – non-compete clause
Non-compete clauses are designed to prevent employees from engaging in certain conduct that may damage the employer’s business. A well-drafted non-compete clause includes prohibitions on soliciting past or current clients, poaching past or current employees, and interfering with contractual relationships including supply relationships.
Restraint clauses should not go further than is necessary to protect the ‘reasonable interests of the employer’. In deciding whether a restraint clause is fair and enforceable, the courts will consider the scope of the clause, the duration of the restraint, whether the employee obtained legal advice, and to what extent the restraint was negotiated between the parties.
You can take practical steps to protect your business including limiting employees’ access to intellectual property and confidential information. For example, only senior staff and employees in development roles can access confidential business planning. Only client-facing employees can access the client database.
Exit letter – specific and implied obligations
There are general law obligations on employees, as well as contractual obligations in the employment agreement. A departing employee may not be aware of these. It is wise to provide departing employees with an exit letter that sets out their obligations under the employment agreement and their general law obligations.
The general law obligations include:
- a duty of good faith, including a duty not to solicit customers of the business.
- a duty not to use or disclose confidential information obtained by virtue of the working relationship, in any way which benefits the ex-employee or a third party.
An employment agreement between your business and incoming employees, as well as prudent business practices to limit access to confidential information, and an exit letter between your business and departing employees, are important to protect your valuable business information.