Employment Law - The Importance of Having Written Employment Contracts
Date: October 07, 2010
Authors: LAC Lawyers
The facts:
Client company operated its design and manufacturing business across a number of eastern States. It distributed its products to major players in the hospitality industry. Over time, the business declined in one State, requiring closure of that office. The employee running the business in that State was no longer required: the job became redundant.
The employee was hired by the Client company by verbal offer. All subsequent employment arrangements were also oral. The Client company instructed our office that they had never had a discussion about the nature of the confidential information used by it and the Client company’s expectations of the employee during or at the end of the employee’s employment with the Client company.
The problem:
Client company was concerned that the news of the employee’s redundancy would not be well received by the employee; particularly because acrimony had developed between that employee and a number of other staff in other State offices.
The Client company’s directors believed that at best, they would receive a claim for unfair dismissal and at worst, they would lose all of their designs and the few State customers they had managed to retain through the economic downturn.
Client company needed to try to bolt the gate while the employee was half way out the stable door.
The law - redundancy:
The concept of redundancy in employment law is relatively simple but one that is intrinsically connected to unfair dismissal matters. To avoid or be successful in an unfair dismissal claim, the termination of employment must be for genuine operational reasons including:
- the job no longer being available for any person to perform; or
- closure of a business site; or
- a substantial change in the mode of business (ie, moving from a manual system of labour to a fully automated production system); or
- the bankruptcy or liquidation of the employer.
The question asked is whether the redundancy is genuine. Depending on an employer’s circumstances, it may be proper to enquire whether the employer has:
- attempted to redeploy the employee to another role within the company;
- offered additional training to assist the employee in that redeployment or new employment; and
- otherwise paid the employee their proper redundancy entitlements.
The lists above are matters of fact and relatively simple to determine. However, we recommend that if you are considering making an employee redundant, you seek legal advice to prevent an unfair dismissal claim.
The law - confidentiality:
The other legal aspect of this case relates to confidentiality agreements within employment. All employees owe their employers a duty of loyalty and confidence. That duty survives termination of employment and is one of the highest duties in the employment law area. Loyalty and confidence are connected to the trust between an employer and employee, which is a key feature of every employment relationship. The duty also interrelates with the duty not to compete with a former employer.
The law also recognises that employees obtain access to several types of knowledge during the course of employment. Information which is a trade secret or highly confidential, like a customer list, database or designs, however obtained, will provide an employer with legal protection from the improper use of that information by a former employee. Often, the improper use of designs or customer contact lists from a former employer by an employee falls into the category of competition.
However, the law also identifies that employees obtain information in the course of their duties which cannot be extracted from their mind. This knowledge becomes part of an employee’s ‘stock in trade’. If the knowledge is part of the employee’s stock in trade, the question is whether any part of that knowledge is derived from or added to by an objectively recognisable source such as a list or database: here, the matter becomes quite complicated and will require legal advice. Equally, technical legal questions arise wherever an employee has substantially contributed or wholly created a design.
The solution:
Our Client company asked their redundant employee to sign a Deed of Confidentiality. The Deed was designed to protect both types of the employer’s property from being used by the employee after termination. The Deed provided a cascading restraint of trade to prevent the employee from opening a new business in competition with the employer in the design/hospitality field. The consequences for breaches of any term of the Deed were outlined clearly in the redundancy letter, together with advice to the employee to seek independent legal advice.
However, our view of this case is that by not entering the employee into a written contract containing restraint of trade and confidentiality clauses from the outset, the stable door had been left unbolted nearly allowing the employee to leave the company without adequate protection for its confidential information. We recommend that before hiring an employee, for your protection, you seek legal advice about the terms and conditions of that employment.
LAC Lawyers negotiated a settlement figure which was almost 3 times the original offer
Date: November 10, 2010
Author(s): Jana Whitby B.A., LL.B. (Hons.)
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Employment Law - What information is confidential when moving between employment
Date: October 07, 2010
Author(s): LAC Lawyers
Read this article for a fact scenario confronted by one of our employment lawyers on what information is regarded as confidential when moving employment.