Bloch and Brearley: Employment Covenants and Confidential Information: Law, Practice and Technique

Description

Written under the general editorship of two specialist employment law practitioners, with contributions from their respective Chambers and Law Firm, Employment Covenants and Confidential Information: Law, Practice and Technique, Fourth Edition provides a comprehensive yet highly practical analysis of the law and practice in this area of employment disputes, setting out appropriate strategies from both the employer’s and employee’s perspective. The book focuses on how to prevent competitive activity by an employee or former employee and what to do when it happens. Clear guidance is given on drafting to minimise the risk of competitive activity, what activities an employee or ex-employee may and may not undertake and the remedies available where competitive activity occurs. This expanded edition includes up-to-date coverage of: Employment Covenants and Confidential Information, Fourth Edition is essential reading for all employment law practitioners, HR professionals and company directors responsible for drafting and enforcing employment contracts. Through the use of checklists, flowcharts, precedents and case studies it translates theory into practice. Preface Table of Statutes Table of Statutory Instruments Table of Cases Chapter 1 Aim and synopsis of the book Introduction The employee as a source of competition The employer as an obstacle to the employee Types of competitive activity Restraint of trade doctrine 1. General structure of this book The employment relationship (Chapter 2) The implied duty of fidelity (Chapter 3) Employee fiduciary duties (Chapter 4) Express terms of the contract of employment (Chapter 5) Confidential information (Chapter 6) Database rights (Chapter 7) Practical steps to protect the employer’s interests (Chapter 8) Termination of employment (Chapter 9) Potential conflicts between ex-employer and ex-employee (Chapters 10–13) Legitimate protection for the ex-employer (Chapter 10) Reasonableness of express covenants (Chapter 11) Drafting restrictive covenants (Chapter 12) Introducing/varying restrictive covenants (Chapter 13) Remedies available to the (ex-)employer (Chapters 14–16) Interim remedies: general (Chapter 14) Specific interim remedies (Chapter 15) Final remedies (Chapter 16) The international element (Chapter 17) Discovering competitive activity/team moves (Chapters 18 and 19) Discovering competitive activity: the immediate practical issues (Chapter 18) Team moves (Chapter 19) 2. Balancing the interests of employer and employee: an introduction 2(a) Implied duty of fidelity/fiduciary duties 2(b) Express terms applying during employment 3. Balancing the interests of an ex-employer and ex-employee: introduction 3(a) End of implied duty of fidelity/fiduciary duties 3(b) Terms applying after employment 4. Rejection of proposed legislative intervention Chapter 2 The employment relationship Introduction 1. Who is an employee? 1(a) Contract of employment or contract for services? 1(b) The tests 1(c) Relevant factors 1(d) The power of the parties to dictate the status of the contract 1(e) Directors as employees 1(f) Members of limited liability partnerships as employees 1(g) Ex-employees as independent contractors 2. The creation of the contract of employment 2(a) Commencement of the employment relationship 2(b) The form of the contract 2(c) The terms of the contract 2(d) Written statement of particulars of employment Chapter 3 The implied duty of fidelity A. Introduction: the duty of fidelity Nature of the duty of fidelity: overview Duration of the duty of fidelity The duty of fidelity and fiduciary duties B. The duty of fidelity and business protection 1. Competition during employment 1(a) Working time 1(b) Spare time 2. Preparations during employment to compete after employment has ended 2(a) Prohibited activities 2(b) Permitted activities 3. Preparatory activity during garden leave 4. Duty of disclosure to the employer 4(a) Wrongdoing 4(b) Information concerning acts preparatory to competition/answering questions by the employer 4(c) Inventions, discoveries and copyright Appendix to Chapter 3 Preparatory activity during employment to compete after employment Chapter 4 Employee fiduciary duties Introduction 1. When does an employee who is not a director owe fiduciary duties? 1(a) The Fishel test for fiduciary obligations 1(b) Circumstances indicative of a fiduciary relationship 1(c) De facto directors 1(d) Shadow directors 1(e) Other workers 1(f) Members of limited liability partnership 1(g) Fiduciary duties to other group companies 2. Scope of fiduciary duties 2(a) Overview: the statutory framework for directors and dangers in extrapolating to non-director employees 2(b) Directors’ duties: the Companies Act 2006 2(c) The duty to act within powers/for proper purposes 2(d) Good faith and promotion of company’s interests 2(e) Duty to exercise independent judgment 2(f) Duty to exercise reasonable care, skill and diligence 2(g) The no conflict and no profit rules 2(h) Exploitation of business opportunities during the employment relationship/directorship 2(i) Fiduciary duty and preparation to compete 2(j) Exclusion from management/garden leave 2(k) Duty of disclosure 2(l) Exploitation of business opportunities after ceasing employment/directorship 2(m) Comparison of the position of employees with and without relevant fiduciary duties Chapter 5 Express terms of the contract of employment Introduction 1. Terms recording/extending obligations included within the duty of fidelity 1(a) A general statement of the duty of fidelity 1(b) Working hours 1(c) Control of outside activities 1(d) Non-poaching of employees 1(e) Disclosure of information and reporting procedures 1(f) Identifying the employer’s property 1(g) Confidentiality and the protection of trade secrets 1(h) Patents, copyright and certain other intellectual property 2. Terms which define the employee’s role 2(a) Job title, duties and reporting line 2(b) Joint appointments 2(c) Mobility 2(d) Interaction with the press/media and social media 2(e) Garden leave 2(f) Special case of fiduciaries 3. Terms pertaining to termination 3(a) What justifies summary dismissal 3(b) Notice required to terminate the contract 3(c) Controlling the employee’s communications regarding his departure 3(d) Garden leave 3(e) Return of property 3(f) Resignation from offices 3(g) Miscellaneous terms Chapter 6 Confidential information Introduction Different kinds of business information Practical effect of the distinction between different types of information When is it necessary to distinguish between trade secrets, mere confidential information and general skill and knowledge? Uncertainty in the law regarding different categories of information 1. Requirements of confidential information 1(a) Quality of confidence 1(b) Circumstances importing an obligation of confidence 1(c) Detrimental breach 2. Distinction between trade secrets, mere confidential information and skill and knowledge: detail 2(a) Definition of trade secrets 2(b) Other definitions of trade secrets 2(c) EU Trade Secrets Directive definition of trade secrets 2(d) Impact of European Convention on Human Rights and Human Rights Act 1998 and possible effect on definitions of trade secrets and confidential information 2(e) Case study on trade secrets: Faccenda in detail 2(f) Conclusion regarding the distinction between trade secrets and mere confidential information 2(g) Distinction between general skill and knowledge and confidential information/trade secrets (including relevance that information is remembered) 2(h) Non-confidential information 2(i) Can (mere) confidential information be protected by express covenant? 3. Express confidentiality covenants 4. Confidential information must be properly identified 5. Restricted shelf life of confidential information 6. Confidential information received by third parties 7. Injunctions to protect confidential information affecting vested rights of third parties 8. Confidential information disclosed in pre-employment period 9. Jointly owned confidential information 10. Defences 10(a) Publication 10(b) Public interest defence 10(c) Effect of repudiatory breach of contract in relation to breach of confidence 10(d) Whistleblowing Appendix to Chapter 6 Examples of cases showing the difference between confidential information and skill and knowledge Non-technical information Technical information Chapter 7 Database rights Introduction 1. Databases qualifying for the database right 1(a) Database 1(b) Fruit of substantial investment 1(c) Territorial qualification 2. Infringement of the database right 3. Duration of the database right 4. Ownership of the database 5. Remedies 6. Allocation of claims Chapter 8 Practical steps to protect the employer’s interests during employment Introduction 1. Ensuring that the employee is motivated and properly rewarded during employment 1(a) What are the benefits to the employer of motivated and properly rewarded employees? 1(b) How does the changing working landscape impact employee motivation and reward? 1(c) Practical steps designed to motivate and properly reward employees 2. Maximising the possibility of detecting competitive activities during employment 2(a) General principles regarding taking practical steps to detect competitive activities during employment 2(b) Practical steps to detect competitive activities during employment Appendix to Chapter 8 Remuneration in the financial services sector and corporate governance requirements for executive pay in listed companies Is there a general right to privacy in the workplace? Guidelines for maintaining confidentiality Chapter 9 Termination of employment Introduction 1. When does employment end? 1(a) Significance of the date of termination 1(b) Methods of termination 1(c) Notice: general principles 1(d) Date of termination: notice/termination by the employer 1(e) Date of termination: notice/termination by the employee 1(f) Date of termination: repudiatory breach 2. Repudiatory breach 2(a) Effect of a repudiatory breach 2(b) Repudiatory breach and collateral contracts 2(c) What amounts to a repudiatory breach? 2(d) Acceptance of repudiatory breach Appendix to Chapter 9 Flow chart; keeping the contract alive Chapter 10 Legitimate protection for the ex-employer Introduction 1. Implied duties after termination of employment: trade secrets/confidential information 2. Express covenants in the contract of employment of the ex-employee 2(a) General statement of the doctrine of restraint of trade 2(b) Legitimate interests of the ex-employer 2(c) Reasonable protection of legitimate interests: introduction 2(d) The special position of the vendor-employee 3. Competition law Appendix to Chapter 10 Introduction Article 101/Chapter 1 Article 102/Chapter 2 Consequences of breach/finding of infringement Merger control Interplay between the Competition Act 1998 and post-termination restrictive covenants Chapter 11 Reasonableness of express covenants 1. Introduction 1(a) Overview 1(b) Current trends 1(c) Ambit of this chapter 2. Criteria relevant to reasonableness of all covenants 2(a) Requirement to focus on the time the contract was entered into 2(b) Position of the employee 2(c) Nature of the business of employer (including where a business activity has ceased) 2(d) Nature of the employee’s work 2(e) ‘Mere shareholding’ by ex-employee in new business 2(f) Competition by ex-employee as principal only or also as agent for a company in which he has an interest? 2(g) Duration 2(h) Whether covenant usual or unusual 2(i) Period of notice 2(j) Consideration for the covenants 2(k) Equality or inequality of bargaining power 2(l) Reasonableness to be assessed excluding improbabilities 3. Criteria relevant to reasonableness of non-competition covenants 3(a) Overview of the approach to non-competition covenants 3(b) Whether a non-competition covenant is appropriate 3(c) Considerations relevant to geographical scope 3(d) Scope of restriction on business activity and role 4. Covenants against soliciting/dealing with customers/prospective customers 4(a) Meaning of ‘solicitation’ (by an ex-employee) and similar phrases 4(b) The preferred type of covenant to protect customer connection 4(c) Criteria relevant to reasonableness of non-solicitation/dealing covenants: generally (including personal dealings limitations) 4(d) Who is a customer/client? 4(e) Quality of contact 4(f) Knowledge of customers absent contact 4(g) Problem of loyalty 4(h) Problems with ‘large’ clients 4(i) Former customers and customer backstop periods 4(j) Usual need for personal connection limitation/personal backstop periods 4(k) Cases where the courts do not insist on personal contact/connection limitation 4(l) Future customers 4(m) Potential customers 4(n) Limitation of customers by area 4(o) ‘The employee’s customers’ – brought with him to the employer 4(p) Non-solicitation of persons who are not customers 4(q) Period of non-solicitation/non-dealing covenants 5. Non-dealing covenants 6. Covenants against enticing/employing/arranging employment for fellow employees/consultants and anti-team moves and related covenants 6(a) Meaning of solicitation 6(b) Permissibility in principle of non-poaching obligations 6(c) Application to working relationships other than employees 6(d) Scope of the restriction 6(e) Non-employment covenants 6(f) Team move clauses 7. Covenants requiring disclosure of job offers/disclosure of covenants to prospective employer 8. Covenants against the disclosure/use of trade secrets and confidential information 9. Supplier/non-interference covenants 10. Other types of post-termination clauses 11. Combining different types of covenant 11(a) Combining non-competition and non-solicitation/dealing covenants 11(b) Combining covenants with ‘garden leave’ 12. Indirect covenants and payments made under such covenants 12(a) Generally 12(b) Forfeiture of benefits due to post-termination competitive activity 12(c) Payment/forfeiture linked to continued employment 12(d) Recovery of payments under an unenforceable covenant 13. Ancillary clauses seeking to strengthen or preserve restrictive covenants 14. Covenants in termination/settlement agreements/contractual or court undertakings 15. Covenants combined with forfeiture/liquidated damages or penalty clauses 16. Termination ‘howsoever caused’ Appendix to Chapter 11 Examples of duration Chapter 12 Drafting restrictive covenants Introduction 1. Why are express restrictive covenants important to the ex-employer? 2. Drafting the covenants: preparatory steps 2(a) Criteria for enforceability 2(b) When must the covenant be reasonable? 2(c) The courts’ approach to the interpretation of restrictive covenants 2(d) Rectification of mistakes 2(e) Nature of business/role of the employee/likely competitive activity 2(f) Information checklist 3. Drafting the covenants 3(a) Types of covenant 3(b) Ambit of the specific covenants 3(c) General drafting points Appendix to Chapter 12 Case studies Case study 1: Excel Copiers (UK) Limited and Brian Thomas Case study 2: Smith & Jones HR Services Limited and Ian Simpson Chapter 13 Introducing/varying restrictive covenants Introduction 1. Introducing restrictive covenants 1(a) Introduction of restrictive covenants as part of the offer of employment 1(b) Introduction of restrictive covenants during the currency of the employment 1(c) Consideration 1(d) Introduction of restrictive covenants on termination of employment 2. Taxation and restrictive covenants 2(a) Taxation on the introduction of restrictive covenants generally 2(b) Taxation on the introduction of restrictive covenants on termination of employment 2(c) Taxation on the renewal of restrictive covenants in severance agreements 3. Variation of restrictive covenants 4. Reviewing restrictive covenants 4(a) Role of the employee altered 4(b) Acquisition of a business 5. TUPE transfers – special problems with construing, enforcing, varying or introducing restrictive covenants 5(a) When do the Regulations apply? 5(b) What do the Regulations do? 5(c) Can the parties contract out of the Regulations? 5(d) How do the courts/employment tribunals construe the Regulations? 5(e) Commonly asked questions by employers 5(f) Interpretation of existing restrictive covenants in the context of a TUPE transfer 5(g) Introduction/variation of restrictive covenants in the context of a TUPE transfer 5(h) Dismissal 5(i) Service provision changes and involuntary TUPE transfers 5(j) Objections to the TUPE transfer and other pre-transfer terminations Appendix to Chapter 13 Guidelines on introducing covenants during employment 1. Deciding whether to introduce covenants 2. Formulating a strategy for introducing/varying covenants 2(a) Timing 2(b) Method 2(c) Consultation/discussion 2(d) Timescale for acceptance 2(e) Dealing with objectors 2(f) Dealing with those who do not respond 2(g) Collective consultation obligations Chapter 14 Interim remedies: general Introduction 1. Jurisdiction 2. Exercise of discretion 2(a) Serious issue to be tried 2(b) Balance of convenience 2(c) The position under the Civil Procedure Rules 2(d) The importance of compliance with Rules, Practice Directions and Court Orders 3. The range of interim remedies 4. Preliminary considerations 4(a) Pre-action correspondence/notice to respondent? 4(b) The return date 4(c) Which court? 4(d) Cross-undertaking as to damages 4(e) Which respondents? 5. The evidence: strength of the case 5(a) Introduction 5(b) Detail 5(c) Section 12 Human Rights Act 1998 5(d) Practical conclusions 6. Obtaining the evidence 7. Witness statements or other evidence in writing 7(a) Form 7(b) General contents checklist 7(c) Witness statements/statements of case/court records/hearings in breach of confidence cases – maintaining confidence 8. Documentation generally 8(a) A claim form 8(b) An application notice 8(c) Particulars of claim 8(d) A witness statement or witness statements (or affidavit, in the case of freezing or search orders) 8(e) Draft minute of order 8(f) Skeleton arguments/chronologies/cast lists/authorities/time estimates/court bundles 8(g) Costs schedules 8(h) Acts required of a respondent to an application for an interim injunction 9. Procedure for obtaining interim injunctions 9(a) Without notice 9(b) On notice 10. Undertakings by respondent 10(a) Undertakings to the court 10(b) Contractual undertakings by respondent 11. Order for speedy trial 12. Interim declarations 13. Summary judgment 14. Pre-action disclosure 14(a) Pre-action disclosure against the prospective defendant 14(b) Pre-action disclosure against third parties 14(c) Tactical considerations: pre-action disclosure/questions as against prospective respondent/third parties 14(d) Orders for early provision of witness statements and disclosure of evidence 14(e) Correspondence seeking pre-action or early disclosure/information 15. Stay in favour of mediation 16. Serving interim orders 17. Committal proceedings 18. Trial or settlement 19. Costs orders 19(a) Costs of interim hearing 19(b) Payment on account of costs 19(c) Basis of assessment of costs 19(d) Part 36 offers/other offers 19(e) Costs liability of third parties 20. Appeals 21. Litigants in person Chapter 15 Specific interim remedies Introduction 1. Prohibitory injunctions to restrain breaches of restrictive covenants 2. Garden leave injunctions 2(a) Introduction 2(b) Continuation of the employment contract 2(c) Prohibition on specific performance of an employment contract 2(d) Development of the garden leave injunction 2(e) The ‘right to work’ 2(f) Negativing the right to work – garden leave clauses 2(g) Payment of salary and compulsion to work: Sunrise Brokers 2(h) Restraint of trade and the enforcement of garden leave 2(i) When and for how long garden leave will be ordered 2(j) Interplay between garden leave and restrictive covenants 2(k) Summary of garden leave considerations 3. Confidentiality injunctions 4. Springboard injunctions 4(a) The Springboard principle 4(b) Classic statement of principles: Terrapin and Roger Bullivant 4(c) The modern restatement of principles: QBE v Dymoke 4(d) Confidential information cases 4(e) Extension to breaches other than breach of confidence 4(f) Types of springboard offer 4(g) The duration of springboard relief 4(h) Controversy concerning the springboard doctrine 4(i) Interim or final order? 4(j) The patent infringement analogy 5. Orders relating to documents 5(a) Introduction 5(b) Property of the ex-employer 5(c) Detention, preservation and inspection orders 5(d) Interim mandatory injunctions 5(e) Orders for delivery up, search or inspection of electronic devices 5(f) Orders for provision of witness statements and early disclosure of evidence 6. Search orders 6(a) Nature of the order 6(b) Usual relief – standard form of search order 6(c) Requirements for search order 6(d) Limits on the use of search orders: proportionality 6(e) Safeguards where the search order is granted 6(f) Can a respondent refuse to comply? 6(g) Applications to discharge 6(h) Cross-examination of respondent on his affidavit 6(i) Foreign defendants Appendix to Chapter 15 Chapter 16 Final remedies Introduction 1. Damages for breach of the employment contract 1(a) Normal measure 1(b) Damages where there is no demonstrable financial loss: Wrotham Park damages (now known as ‘negotiating damages’) 2. Damages for inducing breach of contract and other economic torts 2(a) The economic torts: inducement of breach tort compared with conspiracy 2(b) Measure of loss for economic torts 2(c) Exemplary damages for economic torts 3. Damages for breach of confidence 3(a) Damages for breach of confidence in a contractual context 3(b) Damages for breach of confidence outside contractual context 3(c) Claim for loss of profits for breach of confidence 3(d) Stage of proceedings at which damages are assessed 3(e) Further breaches of confidence not proved at trial 3(f) Date at which damages are assessed 3(g) Exemplary damages for breach of confidence 3(h) Damages in addition to or in lieu of an injunction 4. Account of profits 4(a) When is an account of profits available? 4(b) Account of profits for breach of contract 4(c) To what profits is the claimant entitled? 5 Choice between an account of profits and damages 6. Permanent injunctions 6(a) Discretion to grant or refuse 6(b) Need to frame injunction precisely 7. Delivery up/destruction 8. Declarations 9. Receiver 10. Rectification 11. Remedies for breach of fiduciary duty 11(a) Remedies against the fiduciary 11(b) Remedies against third parties in connection with breach of fiduciary duty 11(c) Limitation 12. Costs Annex: limitation and breach of fiduciary duty Chapter 17 International elements Introduction 1. Jurisdiction 1(a) The Recast Brussels I Regulation 1(b) Cases outside the Recast Brussels I Regulation 1(c) Jurisdiction to grant provisional relief 2. Competing jurisdictions 2(a) Cases within the Recast Brussels I Regulation 2(b) Cases outside the Recast Brussels I Regulation 3. Applicable law 3(a) Claims in contract 3(b) Claims other than in contract 3(c) Concurrent claims 3(d) Type of relief claimed 4. Evidence 4(a) Proceedings in England 4(b) Overseas proceedings 5. Recognition and enforcement of judgments 5(a) Recast Brussels I Regulation Member States 5(b) Recognition and enforcement of judgments where the Recast Brussels I Regulation does not apply Chapter 18 Discovering competitive activity: the immediate practical issues Introduction Overview Ambit of this chapter 1. Reacting to the discovery of competitive activity 2. Preliminary issue 1: instructing the legal team and other advisers 2(a) The legal team 2(b) Forensic IT, accountancy and public relations advisers 3. Preliminary issue 2: allocation of responsibilities to the (ex-)employer’s core internal management team 4. Preliminary issue 3: should the employee be suspended? 4(a) An express right to suspend 4(b) An implied right to suspend 4(c) Pay during suspension 4(d) Restraining suspension 4(e) The suspension meeting and letter 4(f) Disadvantages to the employer of suspension 5. Applying the three basic steps: discovery of competitive activity during employment 5(a) Gathering information 5(b) Taking key decisions 5(c) Settling a strategy to reflect the key decisions 6. Applying the three basic steps: discovery of competitive activity after employment has ended 6(a) Gathering information 6(b) Taking key decisions 6(c) Settling a strategy to reflect the key decisions 7. Letters before claim 7(a) Letters before claim to the (ex-)employee 7(b) Letters before claim to the poaching employer 8. Alternative dispute resolution (‘ADR’) 8(a) Why should the (ex-)employer mediate? 8(b) What are the advantages of mediation? 8(c) When should the mediation process be started? 8(d) What are the cost consequences of mediating the dispute? 8(e) What other factors need to be taken into account? Appendix 1 to Chapter 18 Customer/client risk analysis regarding the (ex-)employee’s competitive activity Appendix 2 to Chapter 18 Key decisions and strategy – Case Study 1 Case study 1: Excel Copiers Limited and Brian Thomas Appendix 3 to Chapter 18 Key decisions and strategy – Case Study 2 Case study 2: Smith & Jones HR Services Limited and Ian Simpson Appendix 4 to Chapter 18 Letter before claim to the ex-employee in Case Study 2 Appendix 5 to Chapter 18 Documentation for proceedings against the ex-employee in Case Study 2 Appendix 6 to Chapter 18 Arbitration: an overview Appendix 7 to Chapter 18 Alternative Dispute Resolution (‘ADR’): an overview Appendix 8 to Chapter 18 Useful materials Chapter 19 Team moves Introduction 1. The team move threat 2. Employee obligations 2(a) Duties of disclosure/reporting obligations 2(b) Other aspects of the implied duty of fidelity/fiduciary duties 2(c) Express terms 3. Claims against the poaching employer/financial backer/headhunters 4. Economic torts 4(a) Potential claims against third parties 4(b) Knowing inducement of breach of contract 4(c) Conspiracy 4(d) Causing loss by unlawful means 4(e) Dishonest assistance in the breach of fiduciary duties 5. Detection of team moves 5(a) Offsite meetings of a group 5(b) Unusual absence patterns/travel plans 5(c) Text messaging and instant messenger services 5(d) Unusual alliances 5(e) Apparently unconnected telephone calls to team members 5(f) Sudden interest in employment terms 5(g) Furtive behaviour amongst a group of employees 5(h) Unexplained changes to previous patterns of behaviour 5(i) Resignations of junior employees 5(j) Voluntary/‘manufactured’ resignations as a statutory director 5(k) Other unusual behaviour 6. (Ex-)employer’s response to a team move 6(a) Strategic considerations 6(b) Retaining/splitting the team 6(c) ‘Selling’ the business 6(d) Application of TUPE 7. Key points for the team and the poaching employer/financial backer 7(a) Using a third party to recruit team members 7(b) The team 7(c) The poaching employer 7(d) The financial backer Index