Departing Employees: Ensuring Protection Of Trade Secrets And Intellectual Property

"Knowledge is power" goes the old adage. Well, that is certainly true in the world of business where secret processes, confidential designs, and even a good customer list can give a business a vital commercial edge over its rivals. Protecting the sanctity of that information on the departure of a key employee is vital.

When it is a creative employee departing, there can be extra considerations related to protecting intellectual property (IP)—and mitigating the risk of the ex-employee exploiting the IP for his or her own use or a third party's advantage.

In this article, we will look at the risks that arise upon an employee's departure and the steps employers can take for greater protection.

The International Perspective

We will do so against the background of a global economy. After all, the ex-employee could have been working in one of your overseas subsidiaries—and even if he or she wasn't, the ex-employee could pop up as a competitor anywhere in the world. Such a circumstance could leave you at the mercy of another jurisdiction's laws—at least when it comes to Laws differ, of course, across the major business nations, and even within them, with the United States and Canada being two good examples of countries where state or provincial law is at least as important as federal law—especially when it comes to restrictive covenants and trade secrets. We will look at express contractual provisions that can be sensible and how to maximize your chances of enforcing them globally.

First, let's take a look at the general legal situation in the absence of any express contractual provisions.

Protection Implied by Law During Employment

In most countries, it is generally implied that an employee will not behave in a way that is detrimental to his or her employer during the period of employment. This includes an obligation to keep secret any confidential information and not to compete with the employer. Seeking to divert work to a soon-to-be new employer would breach this implied duty. However, countries vary in their level of protection. For example, in the United Kingdom, whilst an employee may not start trading in competition, he or she can take "preparatory steps" to do so, such as incorporating a new competing business and finding business premises.

On the IP side, there are various forms of IP protection available to ensure companies benefit from the fruits of their labour—or should I say the fruits of their employees' labour. And therein lies the issue. Companies are not themselves creative—it is the people who work for them that invent new gadgets, write valuable software code, design the shape of products, and so on.

It is accepted in most countries that when a company employs someone to do these things, that in return for paying a wage, the company owns the creative IP which arises...