Many of your employees may be surprised to know that they might owe your business certain legal obligations even once their employment has ended. When you draft your employment agreements, you may include some post-employment legal obligations regarding:
- confidentiality;
- restraint of trade; and
- intellectual property.
This article will outline common examples of post-employment obligations. Understanding these is essential for your business, as you can learn how to safeguard your business’ interests.
Confidentiality
It is inevitable that many of your employees will gain access to your business’ confidential information as a result of their employment. In a general sense, confidential information is any information that the law or a contract deems to be confidential. This means there are likely to be limits on who can access this information.
An employment agreement often includes a clause restricting your employees from disclosing confidential information used during employment. Your employment agreement would typically define confidential information, including:
- business and marketing plans and strategies;
- company manual;
- business procedures;
- employee lists;
- financial information;
- lists of supplies and clients.
Additionally, it is common to find clauses that demand your employees return or destroy confidential information upon their termination.
If your employment agreement does not include a confidentiality clause, your employee may still be restrained from disclosure under the general law. For example, you may be able to bring an action for breach of confidence against your employees for some types of information if it was:
- confidential and not public knowledge;
- communicated in a confidential manner;
- identifiable such that you can identify the information with sufficient specificity; and
- at risk of actual or threatened misuse.
In addition, you must also be able to show that you have suffered some sort of detriment due to the breach.
An Example
During employment, Tim had access to his employer’s product price lists which were not available to the public. When Tim left his employer and started his own business, he decided to use this price list to set the prices for his own products.
Tim would likely breach his post-employment obligation as he likely used confidential information for purposes other than what his employment required.
Restraint of Trade
Some employment agreements may include a restraint of trade clause, which can apply both during your employee’s period of employment and after their employment terminates. These clauses can prevent your employee from:
- working for a competitor or starting a competing business (non-competition); and
- soliciting clients, employees, contractors or suppliers (non-solicitation).
It is important to avoid drafting restraint clauses that are unreasonable. If you do, the onus is on your business to persuade the court that the clause is reasonable and, therefore, enforceable. When determining if a restraint on trade clause is enforceable, the court will consider whether:
- you have a legitimate business interest to protect;
- the restraint is reasonable to protect that interest; and
- enforcing the clause would not be against the public interest in freedom of trade and competition.
Additionally, a court will consider:
- the bargaining position of both parties when negotiating the restraint;
- the nature of your business;
- whether any consideration, such as an additional payment, was given for the restraint; and
- the duration of the restraint and geographical area.
Non-Competition vs Non-Solicitation
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Non-competition |
After leaving her place of employment, Jane immediately began working for a competing business. Her previous employment contract stated that she could not work for any competitors for six months. The question here is whether this restraint clause would be reasonable to protect her previous employer’s business, particularly if Jane cannot find other work with businesses that do not compete with her previous employer. |
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Non-solicitation |
Jim started working for a new employer immediately after leaving his previous employer. At the same time, Jim has been contacting clients of his from his previous employer. His previous employment contract contained a clause preventing him from poaching clients for six months post-employment. Depending on the drafting of the restraint clause, it is likely to be more enforceable. Notably, the clause aims to protect the employer’s client connections, which is a legitimate business interest. |
Intellectual Property
Often, employment agreements will include an intellectual property clause. This clause typically states that your business owns all intellectual property rights, including any material your employees create or develop during their employment. Therefore, if your ex-employee still has IP from your workplace, you can request them to return it.
What Happens if You Breach These Obligations?
When an employee leaves your workplace, it is good practice to issue them a letter reminding them of their post-employment obligations.
In the instance where your employee has breached their post-employment obligations, you may be able to take legal action against your employee for breach of contract. In this instance, a court may place certain restraints on your employee by granting an injunction that requires them to stop doing something.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
As an employer, you may place your employees under certain post-employment obligations which cover:
- confidentiality;
- restraint of trade; and
- intellectual property.
You should be aware of these obligations to know what your employees can and cannot do after their employment ends.
If you need help reviewing your employment agreement, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
Depending on the terms of your employment agreement, your employee may be restricted from disclosing confidential information obtained during employment. The restriction can apply both during and after their employment.
Some employment agreements may include a restraint of trade clause. This clause aims to prevent or deter your employees from:
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