Protect your connections
In a sector such as life sciences where competing businesses will often be trying to recruit from a relatively small and often international pool of skilled workers, the need to protect the business and its connections when an employee leaves will be key. Former employees can use their knowledge of technology, strategic information, and client contacts to benefit a new employer unless provisions are included in the contract to prevent this.
In an employment context, employers in the life sciences sector can protect their businesses in a number of ways. Obviously effective strategies for retention of staff are a valuable way to protect the business from competitors. Realistically, however, there will always be some employees moving on at some point, and well-drafted contracts of employment can put the business in the best possible position when this happens. Confidentiality clauses, garden leave clauses, tightly controlled databases, and provisions to protect intellectual property are all very helpful. Another valuable type of provision for contractual protection of business interests is post-termination restrictive covenants. This is a complicated area of the law, and some key points are addressed below.
Without effective post-termination restraints in the contract, the employer will have almost no protection as these will not generally be implied into the contract. English courts will not, as a rule, uphold restrictions that prevent an individual from earning a living, on grounds of public policy. Therefore, post-termination restrictions must be very carefully drafted and tailored to the business and the individuals’ position within the business. Owing to the competing interests of the employer and the employee respectively, the enforceability (or not) of restrictions is often fiercely fought over between the parties.
The courts will only enforce post-termination restrictions if the employer can show that:
- it has a legitimate interest to protect; and
- the protection sought is no more than is reasonable, and no longer or wider than necessary, to protect the legitimate interests identified.
This is often a difficult line to walk for employers who want to push the breadth of a restriction to its limits.
Preventing competition is not in itself a legitimate interest capable of protection. Over the years, the courts have identified various categories of legitimate business interests that can be protected, which generally fall into the following categories:
- trade or customer connections;
- trade secrets or confidential information; and
- the stability of the workforce.
All of these matters will be important in the life sciences sector. A difficulty for employers drafting these clauses is that the courts will consider the reasonableness of the restriction at the date the employee entered into it, which will usually be when they started employment. So, for example, if a contract imposes broad restrictions (suitable for a senior employee) on a junior employee, the fact that the individual has become more senior by the time they leave will not make the restrictions enforceable. This can be a damaging oversight, so an employer should include restrictions that are appropriate to the employee’s current role and status and update them when it promotes the individual. At this point, the employer must also provide fresh considerations such as a promotion, pay rise, or a one-off payment, to ensure the provisions are enforceable.
Employers must take care not to subject an employee who was engaged in one sector of an industry to a covenant excluding them from participation across the whole of that industry and effectively barring them from earning a living. It is likely that such a restriction will be deemed unreasonable and therefore unenforceable.
Employers need to consider carefully how long the restrictions need to last. As you might expect, the shorter the restricted period, the more reasonable it is likely to be.
Types of restriction
The standard types of restrictive covenants include non-dealing and non-solicitation covenants; non-solicitation of other employees and non-compete. The advantage of the non-dealing covenants is that there is no need to show who approached who, which is not always clear.
Any covenant will usually need to be limited to those customers/employees with whom the employee has had recent dealings and to the parts of the business in which they were active. It is essential to tailor restrictions carefully if they are to be enforceable.
Confidentiality will also be a concern in the life sciences sector. All employees are subject to a general duty of fidelity and confidentiality during and, to a limited extent, after employment. Post-termination, this implied duty only applies to information that is strictly confidential and in the nature of a trade secret. Most employers include express confidentially provisions in their contracts to widen the scope of information which is protected to include matters such as marketing strategies, pricing information, lists, customer lists, and technical data.
The use of social media as a business tool creates additional issues to consider when protecting the employer’s business. In particular, LinkedIn enables the employee to build up a database of the employer’s customers which they may then access via their personal account, even after the employment terminates – this is potentially troublesome for business. Quite often how the use of social media can be restricted post-termination is an evolving area of law that the courts have only considered in a small number of cases. However, we can expect to see further developments in the coming years.
An employer seeking to enforce restrictive covenants can, in certain circumstances, obtain an interim injunction to restrain the employee from breaching the contract. It may also include damages from the employee. Inducing a breach of contract can in itself give rise to a claim, so a former employer may be able to sue the individual’s new employer if the employee has breached a restriction.
- Tailor all covenants to the particular business and to the particular employee.
- Use clear drafting as the courts will not rewrite covenants. They will, however, in certain limited circumstances, ‘blue pencil’ unreasonable parts to delete them.
- If an employee is promoted, review and, if necessary, update restrictions to reflect the level of seniority. Remember that covenants are assessed as at the time they are entered into.
- If asking an employee to enter into new restrictions, ensure there is some form of consideration.
- Remember that any fundamental breach by the employer (such as termination without giving proper notice or by making a payment in lieu of notice which is not permitted by the contract) will mean the individual is no longer bound by the terms of the contract, including confidentiality and post-termination restrictions.
- Bear in mind when appointing staff as self-employed consultants (as opposed to employees) that far fewer legal obligations are implied into a contract with a contractor, in comparison with employees, and therefore consultancy agreements need to be particularly carefully drafted, and sometimes, it will be more prudent to opt for an employment relationship rather than consultancy.
- Note that the law concerning restrictive covenants, and what is and is not enforceable, varies from jurisdiction to jurisdiction. What works in England, for example, might not work elsewhere, and vice versa.