Protecting your business from departing employees and the impact of social media

Post-termination restrictions and social media

Departing employees are often well-placed to take advantage of confidential information, strategic plans, customer and client details or other information about your business, after the termination of their employment. They may attempt to use this information for the benefit of their new employer, or in order to set up a rival business. This can seriously harm your business.

Although employees must observe certain terms that are implied into every contract of employment, these are of a limited nature and do not generally extend to the period after termination of the contract (except in relation to trade secrets). Express restrictions, on the other hand:

  • Can be specifically designed to reflect the parties’ circumstances;
  • If properly drafted and reasonable, can limit the employee’s conduct and prevent them from damaging your business;
  • May deter employees from joining competitors;
  • May deter potential new employers, who face the risk that the restrictions will be enforced by the courts, and may themselves be vulnerable to certain tort claims, such as inducing a breach of contract, or unlawful means conspiracy.

Reasonableness of covenants

There are some well-established key principles in assessing and enforcing post-termination restrictive covenants:

Reasonableness. Post-termination restraints are enforceable if they are reasonable, having regard to the interests of the parties and the public interest.

Legitimate interest. To be enforceable, a restrictive covenant must be designed to protect a legitimate business interest of the employer for which the restraint is reasonably necessary.

• Special treatment for employment covenants. Restrictive covenants in employment contracts are generally viewed more strictly than those in commercial contracts, such as those between a seller and a buyer. They are usually less likely to be regarded as reasonable, because of the inequality of bargaining positions between employer and employee.

Preventing competition must not be an end in itself. Restrictive covenants having the sole aim of preventing competition are never upheld by the court. A non-competition restriction must be designed to protect the employer’s confidential information, trade secrets or customer connections, and prevent the employee from obtaining an unfair advantage by exploiting these for their own, or another employer’s, benefit. Non-solicitation clauses are therefore looked on more favourably than pure non-competition clauses.

Restrictions must be no wider than necessary. For any covenant in restraint of trade to be treated as reasonable in the interests of the parties, “it must afford no more than adequate protection to the benefit of the party in whose favour it is imposed.”

Legitimate interest: what can an employer protect?

You cannot impose a covenant simply because you do not want an ex-employee to compete with your business. However, you can seek to prevent the individual from using or damaging something that legitimately belongs to you. To determine what rights may require protection, you must look at the nature of your business and the employee’s position in the business.

In broad terms, the rights that a court will allow to be protected fall into the following categories:

• Trade connections (with customers, clients or suppliers) and, more generally, goodwill.
• Trade secrets and other confidential information.
• Stability of the workforce.

Challenges presented by social media

Most businesses have a presence on social media websites such as LinkedIn, Facebook and Twitter, and many employees will have their own accounts on these networks which they may use at work, sometimes in the course of their work for you, and often for your benefit. Many businesses have found social media to be an effective method of communication with clients and customers and may use their social media accounts to build up contacts and market their services.

This development in mass internet-based communication presents new challenges for employers who want to protect their trade connections, confidential information and goodwill using conventional means, including:

• The availability and portability of data. For example, valuable contact information can be built up in a personal social media account during employment, which will remain available to the employee after termination.

• The public nature of many social networking sites. Although users are able to control the confidentiality of information using privacy settings, there is often a certain amount of information about each social networking account that is freely available, and therefore in the public domain.

• The blurred distinction between personal and company property, especially where business-related information is held in an employee’s personal social media account. It is likely that such information will never have been stored on the employer’s IT system.

• The speed and efficacy of online communication. For example, it is easy for an employee to communicate the fact of their departure and the identity of their new employer to a large number of connections simply by updating their LinkedIn profile.

These issues remain an emerging area in law, and to an extent, the law has not caught up with the significant advances in technology, or the huge increase in the usage of such platforms, seen over the last decade.

Who owns information stored in an employee’s social media account?

Social media accounts that are associated with a business can contain a valuable body of information. The account’s “connections”, “friends” or “followers” constitute an identifiable list of customers, clients and other supporters of the business, or people who are interested in the business or its products, who may be readily contacted, at little or no cost.

The problem faced by many businesses is that social media accounts are typically owned and operated by individuals, even if it is done on the employer’s behalf.

Social media accounts are designed to be used in this way, and the terms and conditions that no one ever reads and which we all accept, will usually provide that content stored within an account is owned by the user. For example, see the LinkedIn terms and conditions of use!

It is relatively easy for a former employee to allege that they retain ownership of a social media account that they have operated during their employment. This argument may succeed, unless there has been an express agreement between the parties that the account belongs to the employer.

However, employers are becoming more attuned to these issues and may (or should) take steps to make clear that a particular social media account belongs to the business, and will remain so on termination of the individual account holder’s employment.

In Whitmar Publications Ltd v Gamage and others [2013] EWHC 1881 (Ch), a former employee attempted to rely on LinkedIn’s terms of use to argue that several LinkedIn groups she had managed during her employment were personal to her. Awarding a springboard injunction, the court found that the employee’s duties included responsibility for dealing with the LinkedIn accounts, which were operated for the benefit of Whitmar Publications Ltd, using its IT equipment, to promote its business. It made an order effectively handing over management and control of the LinkedIn groups to Whitmar.

This was despite the fact that LinkedIn’s User Agreement states that ownership of a LinkedIn account is personal to the account holder. This decision suggests that social media accounts used by employees for business purposes may effectively be regarded as the employer’s property. However, this will only be possible where the employer places clear restraints on employees’ usage of LinkedIn.

Deliberate transfer of data to a social media account

Of course, where a personal social media account is used as a store for business information unlawfully obtained, for the purposes of competition, this is likely to be treated differently from an account that has grown organically and used openly by the employee during their employment, albeit for the employer’s benefit.

In Hays Specialist Recruitment (Holdings) Ltd and another v Ions and another [2008] EWHC 745 (Ch), a recruitment consultant at Hays, was bound by an express confidentiality restriction and a non-dealing restrictive covenant preventing him from soliciting or dealing with any clients or registered candidates with whom he had dealt during his employment, for a period of six months after termination. However, the employee set up his own company which he intended would compete with Hays and, shortly before leaving, he conducted a number of searches on Hays’s database of clients, prospective clients and candidates. He then contacted a number of clients and candidates on LinkedIn, using his personal account, inviting them to connect with him.

In the context of an application for pre-action disclosure, Hays argued that he had deliberately transferred details of business contacts from the confidential database to the LinkedIn account, and that this was in breach of his express confidentiality obligation. In contrast, the claimant argued that the migration was carried out with the consent of Hays since it had encouraged him to join LinkedIn and that, once each business contact had accepted the invitation, the information ceased to be confidential as it could be seen by all his contacts. The court rejected this argument, finding that there were reasonable grounds for concluding that any loss of confidentiality in the information was caused by his own breach of his obligations.

It should be remembered that this was only an application for disclosure, and as such the court did not consider the substantive issues of the case in any great detail.

Is there a protectable legitimate interest?

The public nature of social networking sites such as Facebook, Twitter and LinkedIn mean that employees may argue that there is nothing inherently confidential about information such as the identity of clients or their contact details.

For example, on LinkedIn, a user’s connections can view the names and profiles of every other connection of that user (subject to open privacy settings), and the same applies to Facebook friends or Twitter followers.

It can therefore be argued that any confidentiality in these connections has been lost, as they are in the public domain.

However, this will not always be the case. In particular, it should be remembered that publication to a defined group (the user’s connections, friends or followers) will not necessarily destroy all confidentiality in the information.

In East England Schools CIC (t/a 4myschools) v Palmer and another [2013] EWHC 4138 (QB) Ms Palmer argued that the availability of school and candidate information on social media and specialist educational recruitment sites meant that her former employer, 4myschools, had no legitimate interest to protect. This was rejected by the High Court, which found that there was a proprietary interest capable of protection. The non-solicitation restrictive covenants sought to protect the close relationships with specific clients and candidates that were built up over time by employees on behalf of the agency. Schools and candidates were more likely to deal with someone with whom they had a personal relationship, and it was this that would inevitably lead to disruption of 4myschools’ business. Although identities, addresses, phone numbers and qualifications may all have been publicly available, Ms Palmer would have acquired other valuable information about schools and candidates in the course of her employment that was not publicly available. That would include information about the personalities concerned, and about their special requirements. That information, as an aspect of her personal connection with the people concerned, would be of use to Ms Palmer in any attempt that she might make to divert business to her new employer.

This case illustrates the point that although social media may have changed the way in which employees compete, in some cases making it easier to do so, the fundamental principles of enforcing post-termination restrictions have not changed.

Solicitation and social media

Employers routinely seek to prevent solicitation of clients, customers and employees by means of post-termination restrictive covenants. This usually refers to the practice of a former employee approaching such individuals with a view to obtaining their business. It generally, though not always, requires a positive act on behalf of the former employee, an invitation to transact business with the target of the solicitation, and intent to do so.

The availability of social media as a pervasive, large-scale communication tool has made it easier for employees to announce their departure from one employer and the identity of their new employer, or the existence of their new business venture.

This may be as simple as the employee updating the details on their profile, which will trigger a notification to the employee’s connections, friends or followers. If such notification is seen by the employee’s LinkedIn connections, for example, which may include many of their former employer’s clients and customers, will this amount to solicitation? The few published cases on solicitation show that this will depend on the precise nature of the communication, its content, and the intent behind the communication. However, it has been held that a communication which does no more than inform a client that an employee has left his employer is not solicitation, even if it contains the address of the former employee, and even if it is sent in the hope that the client will transfer his custom.

This might suggest that a simple change to a LinkedIn profile would not amount to solicitation.

However, this cannot be ruled out, and a court is likely to consider to what extent the profile change (or other announcement) is either an express or implied request to transact business. This will depend very much on the circumstances. Any active encouragement to the connections, friends or followers to contact the former employee is likely to amount to solicitation, but anything more subtle than that will require careful consideration of what the employee is trying to achieve.

Social media policy

It is advisable for you to put in place a specific social media policy, whether or not employees are encouraged to use social media for business purposes. This should make clear whether employees are permitted to use personal social media accounts for business purposes, and in particular, whether they are permitted to add business contacts to their personal accounts, and what should happen to this information on termination of employment.

If you have any questions about restrictions or social media please do not hesitate to contact Albert on 01983 897003.

This article was written and researched by Albert Bargery, Solicitor at our Isle of Wight Office. Albert BargeryAlbert advises employers and employees on the Isle of Wight and throughout the UK. You can contact Albert by email: [email protected]

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

 

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