When key employees leave: protecting relationships, clients and confidential information

When a key employee leaves, the impact on your organisation can extend far beyond the immediate termination of employment. For employers, there are often concerns about the employee’s ongoing duties, client relationships, the risk of colleagues being enticed to leave and the potential misuse of confidential information or business-critical know-how.

Taking steps to protect those interests before a key employee leaves can significantly reduce the associated risks. This article considers the main protections employers can put in place to mitigate the organisation being put at risk when a key employee departs.

Duty of fidelity

At the very least, employees have an implied duty of fidelity towards their employer. This is a duty of good faith, meaning employees must behave honestly and faithfully towards their employer.

An employer who believes an employee may have breached their duty of fidelity could have grounds to take disciplinary action, particularly where there is evidence of dishonesty or a breach of confidentiality. However, this duty does not require employees to give up their contractual rights for the employer’s benefit.

The duty of fidelity will continue throughout the duration of the employment contract but will cease when the employment ends. Whilst it can provide some protection against misconduct during employment, employers should not rely on it alone where they wish to protect client relationships, confidential information or workforce stability after an employee leaves. Additional contractual protections are therefore often required.

Garden leave

When an employee resigns or is given notice of termination, employers may wish to restrict their involvement in the organisation during the notice period. This is commonly achieved through garden leave, under which the employee remains employed and continues to receive their salary and benefits but is not required to attend work or carry out their usual duties.

Garden leave can be an effective way of protecting business interests by limiting the employee’s access to confidential information, clients and colleagues during that time. This can be a particularly useful provision where the departing key employee has played an instrumental role with clients, has influence over other employees, or has access to commercially sensitive information.

However, employers should ensure that employment contracts contain clear and carefully drafted garden leave provisions. Without an express contractual right to require an employee to stay away from work, this could give rise to claims that the employer has breached the employment contract.

Restrictive covenants

Whilst implied duties and garden leave provisions are valuable, they should not be relied upon alone. Restrictive covenants are often the most effective contractual mechanism for protecting client relationships, preventing employee poaching and safeguarding confidential information after employment has ended.

Common restrictive covenants include:

• Non-compete – preventing a former employee from joining or setting up a competing organisation for a limited period. As they can restrict an individual’s ability to work, they are closely scrutinised and should only be used where narrower protections would not be sufficient.
• Non-solicitation – preventing a former employee from approaching clients or prospective clients with whom they had dealings during employment.
• Non-dealing – preventing a former employee from doing business with certain clients, even if the client makes the first approach.
• Non-poaching – restricting a former employee from encouraging colleagues to leave or recruiting them into a new role.

Together, these restrictions can help preserve client goodwill, maintain workforce stability and reduce the risk of confidential information being used to benefit a competitor.

Importantly, restrictive covenants should go no further than reasonably necessary to protect a legitimate business interest. If not, there is a risk that the restriction will be unenforceable. Therefore, when including post-termination restrictions within an employment contract, consideration should be given to the employee’s role, seniority and access to clients or confidential information on a case-by-case basis.

Other considerations

Employers should also ensure that confidential information, intellectual property and personal data are adequately protected through contractual provisions and policies.

• Although employees owe duties of confidentiality during employment, those protections are significantly reduced once employment ends. Employers should therefore include express confidentiality provisions which clearly define the information they wish to protect beyond the end of the employment relationship.
• Employers should also ensure that intellectual property (IP) created during employment belongs to the organisation and, where appropriate, include IP assignment provisions in employment contracts. While IP created in the course of employment will generally belong to the employer, clear contractual wording can help avoid disputes over ownership of work product, inventions, databases and other assets.

Data protection obligations should also be considered. Employees frequently have access to significant amounts of personal data relating to clients and colleagues. Employers should implement appropriate policies governing the handling, storage and deletion of information and ensure access to systems and data is reviewed when an employee leaves.

How we can help

The best way to protect relationships, clients and confidential information is to put clear contractual protections and supporting policies in place before a key employee leaves. This can help minimise business disruption and reduce the risk of disputes.

If you would like to discuss any of the issues raised in this article or if you need help reviewing your contractual protections, one of our employment experts would be pleased to assist you