As an employer have you ever wondered what essential clauses must be in your employment contracts?
Well we have… and so we have come up with the 3 main clauses. Now these clauses are mentioned on the basis that they are trying to protect your business, protect your customer lists, protect your future work flow, protect your confidential information and protect any intellectual property that your employee has created whilst working for you.
Ok, I’ve got my short black, let’s go through them one at a time.
Restraint
A restraint is a clause that stops an ex-employee from doing things once they leave your employment. Restraints are usually broken down into 2 types of clauses: non-compete and non-solicitation.
Non-compete
A non-compete is a clause that is designed to stop your ex-employee working for a business that is in competition with your business for a certain period of time in a certain area; e.g. ‘you must not, for a period of 6 months, within 5 km of our business, be engaged in, or work for, any business that competes with our business’. We have watered this example clause down a bit (bit like when you add water to scotch) as the full clause might be a bit hard to stomach. But you get the idea.
Having such a clause helps protect your business by stopping one of your competitors getting an advantage by hiring your ex-employee, in essence that business would get access to all the knowledge that your ex-employee has about your business, your customers, your profit margins etc, and this clause stops that happening.
Non-solicitation
A non-solicitation clause has the effect of stopping an ex-employee from poaching your current staff and your current clients. A well drafted non-solicitation clause will stop an ex-employee for ‘soliciting’ (approaching or ‘stealing’) your current and past clients, suppliers or contractors and it will also stop an ex-employee from trying to steal current employees.
Generally these clauses only operate for a period of time, generally between 6 months out to about 2 years.
Confidential Information
The next clause we want to talk about is a Confidentiality clause. In short this clause will define what information your business has which it classifies as being confidential in nature and then the relevant clause will prohibit an employee or ex-employee from ever disclosing that information. That way no one should ever know your business’s confidential information.
There are a couple of circumstances where an employee or ex-employee will be allowed to disclose confidential information (e.g. to a judge in court proceedings) but otherwise this clause will stop the disclosure of your confidential information.
If you think that what you have is not sufficiently important to be classified as being confidential… think again. The bar is quite low.
Intellectual Property
In every employment agreement you want to make it clear that any intellectual property that your employee creates during their employment with you is owned by you. That way your business can continue to use, or look to exploit, that IP because it is owned by the business and not by the employee.
You will need to be careful to ensure that this clause is not drafted too widely, because an employer can, in general terms, only put its hand up to own IP that is created by an employee during the course of their employment. So if your employee is hired to help develop websites for clients and that employee develops a mobile app after hours and not using company resources and that mobile app has absolutely nothing to do with the employees employment, then the employee would still own all intellectual property rights in that mobile app.
Which is fair, as you as an employer are not paying them to develop mobile apps, but rather you are paying them to develop websites. The water would get murky pretty quickly though if that employee was developing websites after hours on a work computer. In those circumstances the employer might have a strong case that they own the IP that was created after hours.
For this reason it’s important that an employee’s job role or job description is 100% clear so that there is no doubt about their role and what IP (if any) they are meant to be creating as part of their role.
If you have those 3 clauses in your employment agreement you are going to be a lot further ahead than most businesses! If you have an questions please get in touch on 1800 355 455.
