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What to do when an employee steals your IP

01 Nov 2010

Losing a valuable client hurts. Losing that client to a former employee, on the other hand, gives you a sickening feeling in your stomach, particularly when that employee told you they weren’t leaving to work for a competitor. So when you find out that an employee has done precisely that, what do you do?
The first step is to check the employment agreement to see what clauses you have included to protect you in situations like this.
Most employment agreements will contain a confidentiality clause, which the employee remains bound by as long as the information to which they had access whilst employed by you remains confidential (ie: even after termination of employment). Most well-drafted clauses will also forbid removing confidential information from your premises, and this would include emailing client lists to a personal email account or copying them onto a flash drive. Therefore, for an employee to copy customer lists or trade secrets would give you the legal right to claim breach of contract. However, if your employee carries information around in his head, such as names and addresses of clients with whom he has had dealings, you need to go one step further if you are to adequately prevent an employee stealing your clients.
That’s why most employers seek to impose non-solicitation obligations upon their employees. These clauses prevent an employee trying to entice your clients away from you, and often extend to indirect approaches on the ex-employee’s behalf. It wouldn’t, however, apply to a general advertisement which wasn’t targeted towards a specific group of individuals, so it’s possible that a client could still learn that your ex-employee had moved on and follow them to their new employment. Needless to say, that is what most ex-employees claim when accused of solicitation.
To prevent this, or a situation where a client finds your former employee by accident, a non-dealings clause can be useful. This prevents your former employee having any dealings with your clients, irrespective of who approached who and whether evidence of solicitation is available.
Then finally you have a restraint of trade clause, which would prevent a former employee working for your competitors.
These types of clauses give you the greatest amount of protection and are necessary where it is more than just your client list that you are seeking to protect (for example, trade secrets or other know-how).
But are they enforceable?
The law requires such clauses to be of a reasonable duration and scope. So for example, a non-solicitation clause of 3-6 months would stand a better chance of being upheld rather than a restraint of trade clause for a similar duration. But if your restraint of trade clause was limited to a small geographical radius from your premises, then a longer period may be acceptable. It all depends on the circumstances, which is why legal advice should be sought.
The Employment Relations Authority will enforce reasonable restraint clauses, and the process is not as complicated as you may think. But, before you make any allegations, you need to gather as much evidence as you can that your employee has breached one of these clauses. Sometimes the breach will be obvious (for example, where the employee works for a competitor in breach of a restraint of trade clause) but in other situations it will not (eg: removing client lists and soliciting clients). That’s when the employment of a good forensic expert can be invaluable to trace email history and computer usage. Without evidence your claim is likely to fail.
Once you have gathered your evidence and considered what legal remedies are available to you, then decide upon a strategy. Enforcing the restraint through the courts is one strategy, but so too is strengthening the relationships with your clients to minimise any damage caused by that employee.  Above all, try to make your decision guided by good advice and commercial reality, rather than by that sickening feeling in your stomach.

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