Elon Musk, the embattled CEO of Twitter is threatening to sue Meta, headed by Mark Zukerberg. Mr Musk alleges that Meta used Twitter’s trade secrets and intellectual property (IP) to build Threads as well as hiring dozens of ex-Twitter employees.
A letter sent by Alex Spiro, an outside lawyer for Mr Musk, alleges that Meta engaged in “systematic, wilful, and unlawful misappropriation of Twitter’s trade secrets and other intellectual property.”
We need to emphasise that this article discusses the law in England and Wales. American law is quite different, and it is beyond the scope (and perhaps usefulness) of this piece. In England and Wales, an employer can attempt to protect confidential information and trade secrets by having employees sign a restrictive covenant. They can also include a confidentiality clause within the company’s employment contracts.
What is a restrictive covenant in an employment contract?
A restrictive covenant is a term in an employment contract that can restrict a former employee’s conduct after they have left your business. There are several types of restrictive covenants, including non-compete, non-solicitation, non-dealing, and non-poaching covenants.
Is a restrictive covenant legally enforceable?
If a claim to enforce a restrictive covenant is brought before the Court, it must have regard to the doctrine of `restraint of trade.’ This principle states that people should be free to follow their trade and use their skills without undue interference.
Any contractual term restricting an employee’s activities after termination is void for being in restraint of trade and contrary to public policy, unless the employer can show that:
- There is a legitimate interest that is appropriate to protect.
- The protection sought is reasonable having regard to the interests of the parties and the public interest.
The Court applies the following key principles in assessing and enforcing post-termination restrictive covenants:
- To be enforceable, a restrictive covenant must be designed to protect a genuine ownership interest of the employer.
- Post-termination restraints are enforceable if they are reasonable, having regard to the interests of the parties and the public interest. The question of reasonableness is at the point when the covenant was entered into, not in the light of subsequent events.
- Restrictive covenants having the sole aim of preventing competition are never upheld by the Court. A non-competition restriction must be designed to protect the employer’s confidential information, trade secrets, or customer connections and prevent the employee from obtaining an unfair advantage.
- Restrictions must be no wider than necessary.
Essentially, the Courts will not uphold a restrictive covenant that merely prevents an employee from accepting a position with a competitor or opening their own business in competition with their former employer. For it to be enforceable, there must be an advantage or asset that the employer aims to protect, for example, a client list, key staff members, or a particular innovation that makes their product or service unique.
How can a company protect confidential information and trade secrets?
An employment contract can include the protection of confidential information during and after employment. A restrictive covenant can include restrictions on using confidential information and trade secrets after the employment has ended.
Such clauses can also be incorporated into commercial agreements with third parties that require access to information to undertake work assigned to them.
In addition to express clauses, all employment contracts contain an implied term that the employee will serve their employer with good faith and fidelity whilst in employment. This means whilst in employment, employees will not under an implied duty of good faith and fidelity, disclose such information to third parties or use it for their own gain.
Whether Elon Musk will actually launch a legal claim against Meta is debatable. He has in the past threatened legal action but not pursued further action. It would be surprising if Mr Zuckerberg’s extensive legal team had not run a risk assessment for potential lawsuits before employing ex-Twitter staff. They will have closely scrutinised Twitter employee’s employment contracts to assess the nature and extent of the confidentiality clauses and restrictive covenants and the extent to which any terms could be successfully enforced.
It may be worth mentioning that there has been a Government consultation regarding introducing a three month statutory limit on the length of non-compete clauses. As at the time of writing, there has been no update to the consultation findings.
In conclusion, the best way to protect your organisation’s confidential information and trade secrets during and after an employee has left your employment, is to have carefully drafted restrictive covenants in your employment contracts that will be enforceable in a court of law and/or review your existing terms to ensure you are not left exposed when a key employee leaves your company.