Protecting Yourself From ‘Competitive’ Former Employees
How can an employer protect its interests from the damage that might be caused by a former employee?
The starting point is that anything that attempts to prohibit or limit a person’s ability to earn an income is considered contrary to public policy and unenforceable unless it is no more than is reasonably necessary to protect the legitimate business interests of the employer.
Reasonable is assessed by reference to the length of time the purport to last, their width (in a geographical sense) and their object.
Each of these criteria should be looked at not only separately but also collectively to gauge their cumulative effect. So, for example, a restraint clause covering the whole of Australia might at first blush look unreasonable but when considered together with a relatively short period of time it covers, it may perhaps not be. It is up to an employer to show that the restraint it is trying to impose is not unreasonable. What is or is not reasonable will vary from case to case.
Post-employment restraints usually encompass attempts to prohibit or limit:
- Disclosure or use of trade secrets or confidential information;
- Poaching former co-workers;
- Poaching former clients or customers; and
- Competition with the former employer; e.g. by working for a direct competitor.
An employer cannot simply stop a former employee from competing. The courts won’t interfere to prevent an employee using skills or knowledge he or she has acquired in the course of his or her employment. However, a court may act to prevent a former employee from misusing confidential information or influence over a customer.
‘Confidential information’ falls into 3 main categories:
- Information that is so sensitive that the courts will protect it even if it is not expressly protected in a written employment agreement. Obvious examples of this might be the formula for Coca Cola or KFC’s 11 secret herbs and spices.
- Information which is commercially sensitive but less so than the first category. In such cases, the court will afford protection in circumstances where a valid and enforceable agreement including a provision to such effect, exists.
- Information that does not fall into either of the above categories and is unlikely to be protected under any circumstances.
Likewise, an employer cannot try to put a blanket restraint over post-employment dealings with anyone who might have happened to have been a client/customer at a time during the former employee’s employment, regardless of whether the former had any contact with them at all. Mere contact is not enough either; the relationship needs to have been of a continuing or recurring nature.