Employees diverting business during COVID-19: Options for employers

The COVID-19 pandemic has caused significant economic disruption for employers and their employees alike. As employees may be forced to look for new work, we consider how employers can protect their business from an employee who competes with it or who prepares to compete whilst working from home or when they have been placed on furlough.

Summary

  • What express and implied duties apply to employees generally?
  • Do these express and implied duties apply to furloughed employees?
  • What steps can be taken by employers to investigate the actions of employees during the COVID-19 pandemic?

What evidence will still be accessible during the COVID-19 pandemic?

As part of its response to the COVID-19 pandemic the government introduced the “Coronavirus Job Retention Scheme” which allows UK employers to designate employees as “furloughed workers” which enables the employer to gain access to government support to continue paying a proportion of these furloughed employees’ salaries in order to protect the employees from redundancy.

Whilst an employee is not required to carry out work for an employer whilst on furlough, the employee continues to be subject to the same express and implied duties. Consequently, there is no change in duty for an employee who is on furlough and the legal position remains the same as an employee actively working for an employer whether that be from the employee’s own home or otherwise.

Express and implied duties

If drafted well restrictive covenants can prevent employees from taking clients or other key employees; from seeking to solicit or entice clients or key employees away from an employer; and/or to protect confidential information belonging to the employer to ensure it cannot be retained, copied or utilised by the departing employee post termination of their employment.

In addition to such express provisions, whilst employed, employees are also subject to the implied duty of fidelity which requires an employee to have regard to their employer’s interests by faithfully serving their employer and not acting against the employer’s interests. As furlough is similar to garden leave it is expected that the implied duty of fidelity will apply in the same way.

Restrictive Covenants are clauses within a contract of employment which seek to prevent a departing employee from competing with an employer post the termination of the employee’s employment. To be enforceable such clauses must be reasonable in scope and duration and only go so far as is necessary to protect the employer’s legitimate business interests.

Historically, it was accepted that activities carried out by an employee, who was looking to compete with an employer, which could be classed as “merely preparatory” would not constitute a breach of the implied duty of fidelity. Such activities included identifying suitable premises, negotiating a lease, and incorporating a company in readiness to trade. On the other hand, anything that could be classed as “actual competition” was in breach – i.e. copying confidential information, poaching staff and/or employees etc. In recent years this somewhat simplistic position has evolved into a more complex fact-based assessment which is hugely dependent on the nuanced facts of each and every case but means that “merely preparatory” activities could now constitute a breach.

In order to assess the position, consideration must be had to the circumstances in which the breach arose. The actions of a senior employee, acting in collusion with other senior employees, to start work in a similar role to that which they had previously been employed in competition with their employer is likely to result in a finding of breach even if the actions taken by them would be considered preparatory in nature.

What steps can an employer take to protect their business?

The actions taken by any employee who takes steps to prepare to compete whilst on furlough, when working from home or post termination of their employment will need to be considered against the factual matrix of their role, the steps taken and the enforceability of any post termination restrictions (where relevant). In the current climate it will be more difficult for employers to obtain evidence of wrongdoing.

An employer that finds itself subject to such an attack must act quickly to protect its position. The legal remedies available to an employer include a claim for damages and, importantly, the right to apply to the court for an interim injunction to prevent the activity complained of by the employee in question. In order to be successful in either course of action, the employer will need evidence of the employee’s breach.

Previously, IT forensics could be used to interrogate company IT equipment that had been in the possession of the offending employee, which often results in the recovery of incriminating emails sent by the suspect employee which they have often attempted to delete from their sent items. Further, tracker devices may be placed on vehicles providing evidence of an employee’s, or ex-employee’s (where post termination restrictions are being considered), whereabouts, which can provide evidence of their travelling to a new employer’s place of business (where non-compete restrictions are in place) or meeting up with clients/contacts of the employer with the inevitable inference that they have done so in an attempt to solicit business from them.

In the current climate it is highly unlikely that employers will have access to company laptops which are most likely in the possession of employees who are working from home and unlikely that contact with restricted clients and/or employees is taking place in person. However, the recovery and interrogation of company property remains an option, so long as its recovery is handled appropriately and following current government guidelines. Alternatively, an initial review of information stored on IT Servers and the cloud might assist in distinguishing legitimate and illegitimate use of company information. Overall, employers should remain close to their clients and customers in the hope they will be alerted to any malicious activity direct by those who were contacted.

Conclusion

The express and implied duties upon employees remain unchanged by the COVID-19 pandemic. However, since the introduction of government restrictions to deal with the pandemic and the resulting economic crisis, the opportunity and motivation for breaching such duties has never been more prevalent. Employers need to be alert to the possibility of competing employees and can help themselves stay ahead by proactively communicating closely with furloughed employees, and clients and customers alike. Alerting employees to the possibility of random remote checks on communications may also serve as a useful deterrent.

Contact: If your organisation requires advice on how to protect its position against employees or ex-employees who are competing or preparing to compete, please do get in touch at hello@tenetlaw.co.uk

Tenet Compliance & Litigation Limited. Registered Office, 10th Floor, Lyndon House, 62 Hagley Road, Birmingham, B16 8PE. Registered in England and Wales. Registered No: 09776405. Authorised and regulated by the Solicitors Regulation Authority. SRA Identification No. 626562.
Copyright © Tenet Law. All Rights Reserved.
Created by Gritt & Co