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The difference between winners and losers in business these days boils down to processing knowledge, harvesting intellectual capital, and implementing change rapidly as a result. Increasingly, organisations are outsourcing to specialists, gig workers are dipping in and out, running various projects, and the traditional line of sight and cast-iron contract is a thing of the past. So how safe can intellectual property be in this radical new way of operating?
Article by Jonathan Maude, Chair of the UK/EU Employment Law Committee – Vedder Price.
We all know the pressures now – businesses need the right people at the right time, those that can respond quickly and flexibly with the minimum of disruption and onboarding. But in this fast-moving, short-tenure transient gig culture, the challenge of protecting knowledge and intellectual property is going up exponentially. Businesses are fast changing, and the people that are evolving in this culture and landscape have different values and expectations to the past, which is placing new demands on employers. New flexible working practices have grown to adapt to these demands and to attract and retain this talent, but they are not without their problems.
As readers will be all too aware, the legal system is being kept extra busy with all of the ramifications of the gig economy. So with all this and more in the mix, there is no doubt that employers are feeling the pressure, and that is when corners are cut and catastrophe can come knocking, in the shape of the dark, ominous and sinister shape that is data breech. Of course, corporate intellectual property and trade secrets have always been highly-valued, but when you consider the biggest companies in the world today, their commodity is not gold, diamonds or oil, it’s data. As to whether organisations are doing enough to protect this information, which invariably will need to be shared with workers, particularly if they are being hired on a “gig” basis to undertake a high-level project, is the burning question. Ask yourself, how confident are you?
There is a conflict between rapid change and the need for flexibility on one hand, and the retention of intellectual capital and trade secrets, and maintaining business critical operations such as customer and supplier relationships on the other. The two seem incompatible, how can you hire the best talent on a project basis, yet expect that same talent not to pick-up a project working for a competitor the following month? As usual recruitment and retention issues are at the heart of the knowledge organisation. Companies need to be able to access the best people for the job in hand, yet also retain loyalty, motivate, ensure confidentiality and protect intellectual property. It’s a tall order. A first step, whether hiring long-term or short-term project-based workers, is to advise on the standards expected of them – not just the standards of behaviour expected when working generally for the company, for example around bullying or discrimination, but also what is required in terms of confidentiality. It’s about treading a fine line between putting safeguards in place and being seen to enforce them vigorously, while complementing these measures with softer initiatives to build team spirit, inspire and motivate.
As a practical step, it is always a good idea to set out express provisions around confidentiality or non-competition in a document, preferably separate to the main terms on which the worker is engaged by the company. While there are implied terms of confidentiality which apply to an employment relationship, express terms will be crafted to address the work being done and set out the express “dos and don’ts” in so far as the worker’s conduct is concerned. Providing these terms in a separate document evidences a clear indication that this work is seen as fundamental to the business and as such, it has a legitimate interest in protecting it. It is this protection of a legitimate interest which is key for employers if they later decide to take legal action in connection with any breach. Employers sometimes dispute the worth of adding restrictions upon employees or workers on the basis that they consider them to be unenforceable. However, this is not always the case. There are some recent cases, such as Dyson Technology Limited, which highlight that courts will enforce restrictions, if they are considered to be appropriate. Initially the court will decide upon the meaning of the covenant. Then it will consider whether the company can show a legitimate interest in the substance of the restriction which needs the court’s protection. If both these hurdles are cleared, the covenant should then be no wider than is reasonably necessary to protect the company’s interests.
“There is a conflict between rapid change and the need for flexibility on one hand, and the retention of intellectual capital and trade secrets, and maintaining business critical operations, such as customer and supplier relationships on the other. The two seem incompatible”
In the recent case concerning Dyson Technology, the company took court action against a Dr. Pellerey to prevent him from working for Tesla Motors. He had agreed terms in his employment contract, one of which provided that if any company were to approach him with a view to offering employment which may be in competition with Dyson then he was to inform Dyson of the approach and advise the new employer of the covenants which he had agreed. Tesla, a leading manufacturer of electric cars based in the US, made Dr. Pellerey a conditional job offer of appointment as a Staff Drive Motor Engineer. At the time, because of the job he was doing, he did not consider the notification term was triggered. However, shortly following this he was advised that Dyson were considering developing an electric car and he was to be assigned to this new project, which was to be kept confidential. Additionally he was to work in a secure area and would only be able to access this with use of a security pass. Notwithstanding this change of job circumstances as Dr. Pellerey was still waiting for the Telsa job to become unconditional and so he did not inform Dyson.The job became unconditional Dr. Pellerey resigned and Dyson then brought proceedings to prevent Dr. Pellerey from working for Tesla Motors. They claimed, among other things, that Dr. Pellerey should have told them that he had accepted a job offer with Tesla.
The court agreed and found that Dr. Pellerey should have notified Dyson of the offer as the court regarded the commercial purpose of the notification term and concluded it was to ensure Dyson was made aware of attempts to lure away its employees to work in a competitive employment. The notification term was triggered when Dr. Pellerey learnt of the existence of the Dyson project. Tesla was offering him employment which was, or at the very least “potentially may be” in competition with Dyson and the court found the notification clause was valid and enforceable. Dr. Pellerey acted in breach of it when failing to notify Dyson that he had been approached and had accepted a conditional job offer from Tesla. This aspect of the case is interesting as it goes to show a robust position being adopted by the court and a preparedness to enforce a term which many may think of as being unenforceable. Courts are generally reluctant to prevent an employee from working for whomever they choose but here the interests of Dyson outweighed those of both Dr. Pellerey and Telsa. It goes to show that if there is a legitimate business interest worthy of protection and the company has gone out of its way to evidence this, to both the worker and then subsequently the court, enforcement will follow.
In addition to sharing confidential information with employees and workers, businesses are likely to share details of their client and customer relationships and the terms of dealing with those clients and customers. The same principles apply to the crafting of any restrictions in this area: there needs to be a legitimate interest, the drafting should be clear and the covenant should be no wider than is absolutely necessary.
The benefit for the company is that historically, courts have been more prepared to regard the client and customer relationships as much more a “stock in trade” of the company as it has invested time, money and effort in cultivating those relationships. As such, it is right that the company should be able to hold onto and prevent interference with these relationships, as there is a legitimate business interest in protecting them. If the court is prepared to be robust in its interpretation as to a notification clause, companies can be more optimistic in connection with restraints which have generally been more fertile ground for enforcement in the past. We need to stay ahead of the curve in an ever-increasing, competitive environment. It is possible to have your cake and eat it – hire the best on terms appropriate to them, but ensure the Crown Jewels are protected. Take the right actions and the courts will enforce the terms and protect the company.