Even after an employment relationship has come to an end, there are several obligations that both employees and employers owe each other. As an employer, it is important to understand the obligations that your employees still owe you, particularly if you have concerns after their employment has ended.
Some typical situations might be soliciting or working with a previous client, starting a very similar business, using intellectual property developed while working for you or sharing confidential information gained in the course of employment.
Employees owe several types of post-employment obligations to employers that include:
If you believe an employee is in breach of one or all of these obligations there are a number of steps, you can take which we will address in this article.
Some examples of contractual obligations include the employee’s employment agreement which sets out a number of obligations that will survive the termination of an agreement. These will typically be:
- Post-employment restraint: This aims to restrain (stop) the employee from taking clients with them after their employment ends or contacting them for a set period, taking employees or suppliers, or owning or working for a competing business.
- Intellectual Property: This aims to set out that the employer will own any intellectual property that the employee creates. Further, the employee must not use the intellectual property of the employer, unless in the course of employment.
- Confidential Information: This aims to protect the employer’s confidential information gained during employment and sets out that they cannot use such information post-employment.
- Termination: This clause will typically set out the employee’s post-employment obligations to return property and confidential information. Upon termination, employers are required to pay final pay and entitlements to the employee.
An exception with contractual obligations is the enforceability of post-employment restraints. Even if these are set out in writing, in a contract, they are not necessarily enforceable or reasonable. Therefore, it is imperative to have a well-drafted restraint. Further, it should include cascading clauses (e.g. optional clauses) to ensure that the court has the flexibility to select the most reasonable restraint.
Exit Deed/Deed of Settlement
A contractual obligation may also be in form of an exit deed or deed of settlement signed by the parties. This deed typically sets out similar items as above, however, an additional payment is usually provided when asking an employee to sign an exit deed. An exit deed may also set out that the employee will not make any further claims or take legal action in relation to the termination of their employment.
Common law obligations and fiduciary duties
Implied and common law duties
Along with contractual obligations employees also have additional duties that may extend beyond the term of the employment agreement. Employees have a common law duty of good faith and fidelity, a duty that continues after employment has come to an end. A common law duty means that it is not written in the contract and is not in any legislation or regulation but has developed over time through case law (where situations are tested and assessed in court) and can be implied into the contract. For example, if your employee took your confidential information and shared it with their new employer, they would be in breach of this duty.
Additionally, employees also owe a duty of confidence to employers that also restricts the employee from using or disclosing confidential information of the business. This duty may extend to the employee’s new employer or third parties.
Along with an employee’s contractual obligations and equitable duties, employees may also continue to owe fiduciary duties to employers. For example, if an employee gained knowledge of a confidential tender and benefits from sharing that knowledge with their new employer, they would be in breach of their fiduciary duty.
Employees also owe obligations to you as an employer in relation to section 183 of the Corporations Act 2001 (Cth) which sets out that an employee (and directors and other officers) of a corporation who have gained information as a result of their role must not improperly use the information to gain an advantage for themselves, another person or cause detriment to the business.
Intellectual Property and Copyright
When an employee leaves their employment they may try to take copyright protected materials with them to use at their new role or when setting up a business. However, employees are not allowed to use copyright protected material without consent from you as their previous employer. Their new employer may also be in breach if they are using copyright protected material.
What about skills and knowledge they have gained when working for my business?
An obligation that employees do not owe employers is to not use the know-how and trivial information they have gained from being employed and working in a particular industry. This prevents employers from stopping employees from using all information they have gained during their employment.
What can I do if my employee breaches a post-employment restraint?
The first step is to seek legal advice from a disputes or employment lawyer with experience in these types of disputes. They will assess your current position to determine the:
- obligations your employee owes under contract, common law and statute,
- obligations that the employee has breached,
- potential obligations the new employer or their new business has breached,
- potential courses of actions.
The first step is to make the assessment above and then to issue a letter of demand to the previous employee setting out their obligations, the breach and your requested action. This could include ceasing working with a particular client, using confidential information, using copyright protected material or to destroy such material. You may also include a statutory declaration that the employee must sign to confirm they have undertaken the requested action.
The employee may refute the breach, or ask to amend the statutory declaration. If you are unable to negotiate with the employee then you can take further action which could include seeking an injunction or damages.
As an employer, it is vital to ensure your employment agreement covers detailed post-employment obligations such as in relation to non-compete, non-solicitation, confidentiality, intellectual property, and termination. You must meet your obligations under the contract and post-employment obligations such as final pay and record keeping once employment has ended. Before taking action against an employee, you should ensure that you adhere to any obligations. If you believe your employee is in breach of any of their contractual, common law or statutory obligations, take action immediately. If you have any questions or need advice on the best strategic approach when dealing with a post-employment obligation breach, get in touch with LegalVision’s employment lawyers on 1300 544 755.
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