Protecting intangible assets

In the Courts restraint and confidentiality clauses rarely work, but there are still strong reasons for having them.

In the first place “rarely” does not mean never. And despite difficulties in enforcement they can be effective for other reasons:

  • Moral restraint
    Most employees are honest or society would not work. People generally will not ignore a genuine agreement that they have made with another party. That is so long as the other party seems to also act in good faith. Where coercion or betrayal is felt (real or imagined) an individual is less likely to feel bound by an agreement. Unfortunately, it would also be naive to believe that others will always follow our moral compass.
  • Reputation
    Professional employees have reputations to uphold. If they betray one employer, how long before they betray the next? If you are taking on such an employee, then you could be the next.
  • Emotional restraint
    Court appearances are best avoided, especially if there is a possibility of losing. For an employee (or ex-employee) the prospect of defending their case in court may be daunting (or at least it should be).
  • Legal efficacy
    Injunctions can work and damages can be achieved, sometimes. Unfortunately, and invariably, these matters are not foregone conclusions. So before embarking on what is likely to be an expensive legal challenge it would be wise to take appropriate advice.

Steps you can take.

  • Provide covenants
    Confidentiality and restraint of trade restrictions should be covenants – not dependent on whether the employment continues or not. A separate covenant, with a witnessed signature, carries more weight than clauses contained with a contract of employment.
  • Describe restrictions in plain English
    If employees fully understand what is expected they will think twice before ignoring an agreement that they have made.
  • Make any restrictions reasonable
    Courts do not generally uphold restrictions that prevent competition or deprive an individual of their livelihood. So restrictions need to be necessary to protect legitimate business interests and to go no further than is reasonable, if they are to stand a chance of being enforceable.
    Limiting geographical areas and having reasonable time limits and often ways of creating reasonableness. However, if you have crucial trade secrets to protect, then the exact wording of a covenant takes on greater importance.
  • Treat employees fairly
    Whatever the legal position, moral considerations may be powerful in either direction. Aggrieved employees, those who may feel bullied or who feel they have been unfairly dismissed are far more likely to decamp to a competitor, deal with your customers, or share secrets. Legal action may be no more than attempting to close the stable door once the horse has bolted.

So if you feel an employee’s loyalty is waning then the time to deal with it is while they still work for you. An effective grievance procedure can be helpful as can a bullying and harassment policy. Disciplinary procedures deserve more than lip service. Employees sometimes claim they are not aware of these procedures, or allege the procedures are not taken seriously. Good communication from employer to employee can counter-act such assertions. Involving a third party can also help.

Looking after employee relationships may be the most effective way of protecting your intangible assets.

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