Protecting IP following termination of employment

The disrupted workplace and intellectual property

Australia Publication September 2021

Over the past few instalments we have discussed the lifecycle of the employment relationship and the importance of protecting and valuing an organisation’s intellectual property through mobilising its workforce. We have looked at the important inter-relationship and interdependency between good employee engagement and good IP management.

What has become clear, is that organisations should have a firmly embedded strategy for the protection of their IP which, at its heart, relies on properly mobilising your people to give effect to that strategy, and this is relevant at all stages of the employment relationship.

We now come to the end of the employment relationship and here it is just as important to maintain good practice over employee departures in order to continue protecting one of an organisation’s most valuable assets, being its intellectual property.

By the end of the employment relationship, a properly executed IP strategy will mean that the ownership of IP and confidential information and the continuing obligations regarding the use and disclosure of such material is clearly set out in the employment agreements and has been a pillar of the employment relationship.

So what next? What to do when employees leave?

At the outset, all employees who are leaving their employment with an employer, will be bound by the continuing obligations in their employment agreement. Assuming that these obligations are well drafted in the first place, the obligations are clear on their face. However, it is not as simple as just assuming that an employee will comply with the obligations in their employment agreement. For every departing employee, steps should be taken to:

  • Remind the employee of their continuing obligations;
  • Identify what material is in the employee’s personal possession or control and seek to have such material returned and/or irretrievably deleted.

Notifying employees of continuing obligations

Reminders of continuing obligations should be included as a matter of course in a termination letter. Depending on the circumstances of the departure and particularly where it may be acrimonious, there is often value separate correspondence solely for the purpose of reminding employees that they have continuing obligations in respect of maintaining confidentiality over an organisation’s confidential information and what this entails. It may also be necessary to remind some employees that obligations in respect to confidential information are different from post-employment restraints. Just because an employment agreement does not have in it a post-employment restraint, or the employee wishes to argue the enforceability of a post-employment restraint, does not give rise to an ability for the employee to misuse confidential information.

Retrieving confidential information and IP

Even if an employee is reminded of their continuing obligations, what practical steps do you need to take in order to enforce this protection? The first such step is retrieving from the employee all confidential information that is in their possession or control. In days gone by this was quite simple: an employee packed up their box and left their desk and someone from the HR department determined that there was nothing in that box that was of concern or that otherwise belonged to the company. The employee walked out the door and there was no ongoing concern about any material that an employee took.

This ‘box’ is outdated. We are now in an age where information walks out the door, so to speak, digitally, be it through email or external hard drives and complicated by an employee using multiple devices to access an organisation’s confidential information and work from multiple locations. More recently, we are seeing a new layer of difficulties arising from more flexible working arrangements and predominantly the working from home arrangements that have dominated our working landscape since the COVID-19 pandemic first came to be.

These days we regularly face situations where employees have a fluid approach to the workplace and the way in which they access and use their employer’s confidential information and IP. Situations where due to abrupt changes in an employee’s working environment (say due to a sudden lock-down or COVID exposure), they may have been intending to return to the office but find themselves at home with the employer’s confidential information in hard copy as well as copies of the confidential information on an employee’s own devices or hard drives.

As such, at the time of departure it is vital to ensure that an employee returns all confidential information that is in their possession or control and that deliberate steps are taken by the employer to give effect to this. Returning information includes irretrievably deleting any confidential information that they may have on a personal device or external hard drive and verifying this to the employer’s satisfaction. It also may include providing an employer with a list of the confidential information that has been irretrievably deleted and/or allowing an employer or a representative of the employer access to the employee’s home in order to verify that all confidential information has been deleted. This, of course, would only be in the most serious of circumstances.

What can be seen is that there are increasing degrees of heavy-handedness in the steps that can be taken in order to retrieve an organisation’s confidential information and intellectual property from a departing employee. This has to be finely balanced with the way in which a departing employee will cooperate with the organisation in order to facilitate that return. The more acrimonious the departure, the harder it will be to engage with the employee in respect of that cooperation.

The recent Federal Court case of Liberty Financial Pty Ltd v Jugovic [2021] FCA 607 (Liberty) is an excellent reminder of the importance of these principles and strategy of IP protection. The Liberty decision was an injunction to stop a former Liberty employee working for a competitor. The decision was a timely reminder that post-employment restraints can be enforceable but the starting point for a business that wishes to protect itself against damage from a former employee must properly identify and articulate what interests, including confidential information and intellectual property, the business wants and needs to protect. In articulating what a business considers to be valuable confidential information and intellectual property, it should not assume that all commercially sensitive information or all intellectual property necessarily warrants protection. If the protective net is cast too wide the courts may be reluctant to enforce the contractual protections.

The flip side is that it is also important to consider what obligations prospective employees may owe to former organisations.

Forensic investigations

In more extreme circumstances where an employee is departing an organisation against the interests of that organisation, say for example in order to join a competitor or to start up a competing business, it is prudent to immediately conduct forensic analysis of the employee’s IT usage in the months leading up to their departure or resignation in order to determine whether there has been any unlawful or irregular activity in respect of an organisation’s confidential information or intellectual property.

In this regard, trained forensic IT experts are able to determine with a degree of specificity the way in which an employee has used, accessed or misused confidential information and intellectual property during the course of their employment including transferring files to external hard drives, emailing documents to themselves or even printing large volumes of material. The earlier that such searches are conducted, the easier it is to identify misuse that may have occurred during the course of the employment and therefore identify what intellectual property and confidential information exists outside of the organisation.

Departure Checklist 
Termination letter reminding employees of continuing obligations   
Confirmation from employees that they have returned all property  
List from employees of IP or confidential information on their personal devices   
Confirmation from employees that all IP and confidential information is deleted   
Forensic audit of employees’ online activities   
   

Conclusion

What is abundantly clear is that the protection of an organisation’s intellectual property and confidential information should be a priority throughout the lifecycle of the employment relationship and this should form part of a carefully executed intellectual property protection plan.

An organisation’s intellectual property is one of its most valuable commodities: it cannot be easily recreated, replaced, bought or otherwise duplicated and it forms the backbone of an organisation’s success. An organisation’s intellectual property is its point of differentiation; its eleven secret herbs and spices; its secret recipe. It drives an organisation’s brand and its success.

But intellectual property does not exist in a vacuum. It is created, maintained, used and developed by employees during the course of their employment. The success of an organisation depends on the way in which those people value, promote and protect intellectual property. And this is something that starts before the employment relationship begins, continues throughout the employment relationship, and must be at the forefront of every organisation’s mind at the time that employment relationships end. We know that there are massive turnover costs when an employee walks out the door, but those costs can be minimised as long as the employee does not walk out the door with your most valuable commodity.



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