Legal advice: Using employment contracts to keep trade secrets

I was once asked by a catering client to draft detailed restrictions into a contract of employment to prevent a key employee from joining a possible competitor. These were to be designed to prevent the employee from working for any competitor within Greater London and from soliciting or dealing with any key clients of the company for a period of 12 months.

I was told these were critical. Fortunately, being an awkward soul, I asked more questions before spending too much time on the work since the girl in question turned out, in effect, to be a counter assistant in a coffee shop!

No doubt the coffee was excellent and perhaps there was valid concern that the competition may hide cameras in the bagels but I had to inform them that such restrictions were at best OTT and at worst unenforceable.

This heavy-handed approach is, of course, matched only by the complete failure by some employers to even consider the question of protecting themselves from a raid on their key staff and from having to compete with them after they have left - bristling with confidential information and business plans. With today's vogue for relatively short notice periods, this can mean that your right hand one day is ringing your competitor's till the next.

Trade secrets

So where does the balance lie? Certainly such restrictions need serious thought, since the starting point remains that they are unenforceable on the grounds of public policy unless they are really necessary and don't go too far. It is, however, an urban myth that they are never enforceable and it is fair to say that the courts are becoming, if anything, more generous in their review of such clauses (see the case note on restrictive covenants on the opposite page).

The backbone of this area of law is undoubtedly confidential information and the employee's access to it. In every contract the law will imply a basic duty of confidentiality (whether or not it was included expressly) and for most employees this obligation should be enough.

It will only extend, however, to what might be called genuine trade secrets or information which is not only confidential but proprietary in nature. For our 'barista', the location of the kettle and brand of coffee used would not really be covered. But what about the client list, or events for which our caterer has been asked, in effect, to tender?

The implied right is a little less effective here and for this reason most employers would be advised to draft out clearly an express confidentiality clause in their employees' terms and conditions. This can clearly identify the categories of information that are protected and also ensure that employees are obliged to return your papers and property on leaving.

They may, of course, fail to comply but at least then the employer has the chance to threaten court action with the possibility of conviction. It may also, in extreme cases, allow your solicitor to obtain an 'enter and search' order (not always the most fun unless you enjoy looking through a person's 'magazine' collection) or some other form of court order to protect you.

For more senior people, the expense and effort of drafting more extensive clauses can be worthwhile, but again the focus should always include their level of access to confidential information as opposed to their personal skills or connections.

Don't be mean, keep them keen

Take our coffee lady, for example. What the employer really wanted to do was stop someone poaching a valued staff member. She was good at her job and perhaps popular with customers. Well, the way to keep her would be to ensure she is treated well and paid fairly. The assets valued, though, were her 'stock in trade' and are not something the courts will let you protect in a contract.

In short, she is allowed generally to choose where she works. However, if she were sufficiently senior to be really involved in the company's development plans and truly had access to confidential information, then some level of extra protection from her using this information against the company could have been effective and permissible.

So what could be done? Again, the starting point is "why won't a confidentiality clause be enough?" If the answer is that she cannot un-know what she knows and that it will give a competitor some unfair commercial advantage in sifting their plans the employer could, of course, consider a non-compete clause.

In appropriate cases we could also consider adding clauses preventing her from soliciting or dealing with the company's clients or from inducing other staff members to cross over with her to the 'dark side'. Indeed, if you forgive the pun, there is a veritable menu of options for our coffee girl if the restrictions can be justified.

But there are two words of caution. The first is that simply adding these willy-nilly into contracts (on the 'it will frighten them anyway' ticket) usually backfires, since it shows courts you do not give serious thought to the use of these and that they are not customised to fit real concerns.

The other is that they have to be very carefully drafted and go no further than is necessary to protect your legitimate business interests or they simply won't work. This usually involves a decision on how long they should apply, which clients are covered and what a competitor really is - as well as geographical limitation.

Despite a slightly more generous approach being taken to wording these days, courts will not ordinarily rewrite a bad covenant (for example to make the duration shorter or the geographical areas smaller) to make it enforceable. Given the cost of preparing and using them it is a pity indeed when they are found wanting.

For most the best advice is to really target those who could genuinely do you harm if they were to leave on the basis of the information you have given them. Take good advice early and make the restrictions as limited as you can tolerate. If what you are really worried about is the skill and ability of your employees - look after them or someone else will!