Intellectual property and departing employees: key considerations for business

The COVID-19 pandemic is creating uncharted challenges for businesses across all industries, resulting in many having to make difficult decisions about their staff. 

In times of crisis and uncertainty, identifying and protecting your business’ intellectual property and dealing with employees fairly and transparently is more important than ever.

People and intellectual property (IP) are the most valuable assets in most businesses, and are central to success. Investment in both has the potential to pay big dividends, while the loss of either can result in significant risks. 

When considering staff retention and redundancies in any environment, but particularly during times of crisis, what are some of the key IP considerations businesses should be mindful of? 

1. Identifying valuable intangible assets

Staffing costs are one of the largest expenditure items for most businesses, and for good reason. Employees often develop and carry with them a business’ most valuable asset: IP, which includes confidential information. That confidential information can range from information concerning price structuring, manufacturing processes, future business plans, client lists and other trade secrets.

Employees also develop direct and valuable relationships with customers which can be central to a business’ reputation, ongoing workflow and capacity to get things done. For starters, you can’t protect what you don’t know you have. Businesses that do not have a full grasp of the intangible assets they possess should undertake an audit to determine which confidential information will be key for the immediate and longer term viability of the business. Where financial circumstances allow, businesses should be careful to retain employees who will be vital to the business’ ability to recover as the economy improves.

Some key questions that should be asked include:

• Has the business been working on and investing in research and development for new products and processes? If so, which employees are key to allowing that to continue? What investment will be lost if those employees leave?
  
  
• Are there particular proprietary processes – such as the operation of certain machines or programs – which are only known by particular employees? If those employees leave, how much down time will be lost while others are trained?
  
  
• Which employees hold key client connections? What happens to those connections if the employee moves to a competitor, and how can the business ensure its legitimate interests are protected? 

Faced with pandemic-induced, unprecedented economic volatility, making roles redundant may be unavoidable for many businesses. As well as ensuring the correct redundancy processes are followed, businesses should take steps to protect and retain their IP rights. Adopting a considered approach will help ensure that valuable assets are protected and key relationships survive. 

2. Securing IP rights

Ideally, all employees will have contracts which expressly provide that all IP they generate during the course of their employment vests in the employer. 

Businesses should check their staff contracts before departing employees leave. If their contracts do not include express terms assigning IP rights to the business, the business should take steps to secure those rights before the staff depart. Businesses should also consider whether any further cooperation would be required from departing employees in relation to the prosecution or defence of IP rights. 

3. Review of restraint clauses

Businesses should review the restraint of trade clauses in relevant employment contracts, consider whether they validly seek to protect a legitimate interest of the business and look at whether they place reasonable limitations on former employees. 

 To the extent they do not, or are not, the business may wish to enter into new restraints with key employees on any termination of employment. 

4. Requiring the return of confidential information

When employees leave, it is common for the employer to require (and verify) that the business’ physical property has been returned or destroyed. The same rigour should be applied to confidential information, particularly that which is stored electronically in email accounts, portable drives or the cloud. 

Return or destruction of confidential information such as customer connections or specialist company knowledge which an employee implicitly ‘knows’ can be more difficult to address, but well drafted restraint clauses can act as an effective deterrent. 

5. Enforcement of post-employment obligations

If a business becomes aware that a former employee has contravened their post-employment obligations, it is crucial to take immediate and direct action to seek to restrain that conduct – prompt action will have the most impact. 

Any delay may impact on the company’s ability to be granted interlocutory or final relief from a court. Taking prompt and decisive action also sends a message to the wider market, and to remaining employees, that the business takes the protection of its IP rights and employees’ post-employment obligations seriously and that misuse will not be tolerated. 

6. Hiring of new employees

The other side of the coin is hiring new employees. Rather than reducing work forces during COVID-19, some businesses are aggressively hiring and may find themselves engaging new employees who have been let go by competitors. 

Just as it is critical for a business to protect its own confidential information, it is equally important when employing a new employee (ideally before) for the company to be aware of:

• whether the employee is bound by any restraints or confidentiality obligations in favour of their former employer; and
  
  
• whether that employee might put at risk the new employer’s entitlement to IP they create. 

Any legal action taken by the former employer to protect its interests may prove costly for the hiring business from both a financial and reputational perspective. 

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Identifying and protecting your business’ IP and dealing with employees fairly and transparently is always vital, but is more important than ever during times of crisis. If financially viable, hold on to key people and key IP. If departure is unavoidable, part on terms as graciously as possible to mitigate risks to your intangible assets and ensure the continued success of your business.

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This article is part of our publication Continuity Through Crises: Perspectives on business risk, resilience and recovery in uncertain times.