The departure last week of four members of Twitter’s executive leadership team caused more unease among its shareholders. This is understandable when one reads the list, which included its Head of Products, Head of Engineering, Head of Media and VP of Human Resources. There are reports that the social media giant is trying to revive its growth after its shares lost half of their value in one year, and this latest news cannot have helped.
How can employers best protect their business when high profile executives leave, or potentially even more catastrophic, when an entire team leaves? Of course, preparation is key and in the same way that nobody likes to think of divorce when they’re getting married, employers must consider what protection they’ll need should the employee leave. The risk of damage to the employer’s business where a key member of staff leaves will increase the more senior an employee becomes. Therefore it’s always advisable, on promotion of any employee, to revise contractual provisions to ensure that the company is adequately protected should that employee leave to work for a competitor.
Fundamental to this is to ensure that there is adequate protection for the Company in the following areas:
Garden Leave:
This is a very handy tactic for employers where they want to “batten down the hatches” and secure their customer relationship in preparation before an executive leaves. Taking an employee out of circulation for the duration of his/her notice period is one of the most effective means of ensuring that they cannot actively pursue existing company contacts for a new employer during this time. However, unless it is provided for in the contract of employment, an employer cannot compel an employee to remain on Garden Leave during his/her notice period.
Protection of Confidential Information:
Most employment contracts should contain some sort of provision on company confidential information. Without a definition of what constitutes confidential information and/or proper provisions preventing the misuse/disclosure of confidential information, an employer can only legitimately protect what is a trade secret once an employee leaves his/her employment. This is an extremely high bar for employers to overcome. As such it is recommended that comprehensive provisions be included in the employment contract.
Post-Termination Restrictive Covenants:
If an employee occupies a position which, were they to leave to work for a competitor or set up in competition themselves, could cause damage to the company’s legitimate business interests, then it may be appropriate to include post-termination restrictions. These restrictions include a non-compete & non-solicitation of clients/key employees obligations. The general rule in Ireland in respect of post-termination non-compete restrictions is that they are generally very difficult to enforce, by reason of being deemed a restraint of an employee’s right to work. However, in recent years, the Irish courts have shown themselves to be more willing to enforce reasonable restrictions, where they are indeed reasonable. To be deemed reasonable the employer must show the following:
– that it has a legitimate business interest to protect;
– that the restrictions go no further than is necessary to protect this; and
– that they are not contrary to public policy.
As a rule, such restrictions need to be narrowly defined in terms of the scope of the business protected, the duration of the restriction, and the geographic area covered. Careful drafting is therefore of paramount importance at the outset. If the clause is too broad, or is deemed to be unreasonable, this cannot be rectified at enforcement stage. It is only when an employer seeks to enforce the clause that this becomes obvious.
It cannot be underestimated just how important it is to ensure that the contractual provisions are realistic and go no further than is reasonable/adequate to protect the employer’s legitimate business interests. Each contract should be tailored to the employee, their role and level within an organisation. Even the definition of confidential information should be reviewed regularly to ensure it deals with the specific information that a senior employee will have access to. A one year post-termination non-compete restriction may be appropriate for a Sales Director, but is likely not going to be enforceable against other administrative type roles.
Electronic communications:
Where an employee is going to work for a competitor, it may be advisable for an employer to monitor the work activity of the former employee, going back over a certain period prior to resignation to ensure that company confidential information has not been sent to their personal e-mail or information storage accounts. However, this can normally legitimately only be based on a policy whereby the company reserves the right to monitor work activity on work equipment. This can be crucial in a situation where a team plans to leave together, should the employer need to apply for a springboard injunction, preventing them from gaining a head start in competition with the business as a result of breach of contract while they were still employed in the business.
Social Media / Linkedin Contacts :
While there is no Irish case law/guidance on the ownership of LinkedIn contacts, UK case law has been persuasive in the area. This case law only grants ownership of customer contacts to the employer where they have been generated by the employee in the course of their employment and stored on local systems which are the property of the employer. A decision last year from the Jersey Courts refused to extend confidentiality protection to an employer of the LinkedIn contacts of its former employee, on the basis that the LinkedIn User Agreement stated that all content and information belonged to the user.
What should employers do?
In summary, where candidates are being employed in senior roles (or progressing internally to senior roles) which, if they ever leave, may cause damage to the business, serious consideration should be given to reviewing and updating the contract of employment in order to protect the business and ensure that valuable business opportunities are not lost. The protection a company has is often only as good as the paper it is written on.