Protection from employee competition in the new normal
As lockdown is winding down and the economy is restarting, employers should be on the lookout for unlawful employee competition activity.
We expect to see a sharp rise in recruitment activity over the coming weeks due to employees waiting until the end of lockdown before resigning, as well as businesses considering aggressive recruitment from competitors as vital to their survival.
The dramatic increase in home-working, leading to reduced scrutiny of employee activity, combined with uncertain economic times has created the ideal circumstances for unlawful employee competition to flourish.
Once employees have decided to leave and join a competitor or start up their own business in competition with their current employer, their loyalty is divided. In some cases, this can result in employees breaching their current obligations to give themselves a head start at the competitor. Three of the most common breaches are set out below.
Misusing confidential information
From forwarding emails to a personal account to downloading files onto a personal USB stick or cloud storage system, there are a multitude of ways employees can unlawfully misuse confidential information.
We’ve seen employees using confidential information to write a business plan for a competitor as well as taking many steps to cover their tracks such as renaming key documents, purging deleted documents and photographing presentations, rather than copying or forwarding them. Advanced security systems can mitigate against many of these risks, but never all of them.
Encouraging or soliciting colleagues to leave is another common breach. Senior executives may want to continue working with current colleagues and competitors may be on the lookout to hire a complete ‘team’, rather than spending time and money on buying or building a new department. Spotting this activity during lockdown is particularly challenging as the usual signs (e.g. “Project Phoenix lunch” diary appointment) won’t be there.
Diverting clients or customers
Departing employees are often very keen to let their clients know about their move and gauge whether the client is interested in moving across too. Successful handovers of client relationships are necessary to mitigate any potential steps a departing employee has taken to try and divert business to a competitor. Employers should watch out for employees handing out personal mobile numbers or using unusual forms of communication with clients, for example WhatsApp rather than email, to avoid detection.
What can businesses do to protect themselves?
1. Review and update key clauses in employment contracts for employees including those with management responsibilities, client or customer relationship roles and those who are vital to the business’s success over the coming months. Focus on clauses covering duties during employment, confidentiality, notice periods and garden leave. Use a tailored approach for drafting post-termination restrictive covenants which address the risks that the business needs to mitigate.
2. Introduce or update existing staff policies to maximise the business’s ability to investigate potential unlawful activity when suspicions arise. For example, do you have the right to inspect or interrogate personal systems or devices in addition to employer ones?
3. Refresh or repeat instructions to employees for continued home working. For example, is the use of personal systems or devices for work purposes permitted. If so, what additional steps is the employee required to comply with, to ensure confidential information is protected?
4. Increase security measures to protect business sensitive information. Only permit access to those individuals who really need it. Use password protection, clearly label confidential information as confidential and limit transmission of copies.5. Be vigilant. Encourage employees to report potential risks of employee competition and investigate quickly, when concerns arise.
By Carla Feakins, senior associate, and David Samuels, legal director, at law firm Lewis Silkin