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How can I restrain an ex-employee's conduct?

How can I restrain an ex-employee's conduct?

It’s a common misconception that a post-employment restraint in an employee’s contract of employment isn’t worth the paper it’s written on. But the absence of a restraint leaves you with very limited opportunity to restrain an ex-employee's objectionable conduct.

The conversation usually goes something like this.

Employer: “I have a property manager who recently resigned. I’ve just discovered my client database has been emailed to her private email address and she’s in the process of setting up her own business down the road from mine. What can I do to protect my confidential information, as well as my business?”

REEF: “Do you have provisions in the employment contract setting out post-employment obligations?”

Employer: “Yes, I use the REEF template employment contract. But I’ve been told by lots of people that post- employment restraints aren’t worth the paper they’re written on.”

REEF: “Ignore what those people are saying, because there is something you can do.”

Can you relate to this conversation? Many agency owners can. In fact, if there’s an aspect of owning a real estate agency that keeps Principals awake at night, it’s the thought that their business will be ‘white-anted’ by the nefarious conduct of an ex-employee.

It’s a common misconception that there’s little that can be done to prevent the theft of your confidential information by an employee or ex-employee, or to prevent other dishonest post-employment conduct. However, there are several things that you must do to give yourself the best chance of protecting your business. Doing nothing and hoping the courts will deliver justice is not an option.

The post-employment problem is best considered in light of the two most common issues that arise around the time an employee’s employment comes to an end:

  • The improper use of your agency’s confidential information by an ex-employee; for example, sales and property management databases (including prospective listings and buyer leads)
  • Ex-employees commencing employment with a competitor of the employer or setting up a business in competition with the employer.

 

Protecting confidential information from employee theft

With increasing use of IT platforms and software within real estate businesses, REEF has noticed more instances where employees have inappropriately taken the agency’s important and confidential information (including sales leads and rent roll databases).

In some circumstances, employees adopt very basic procedures to breach their confidentiality obligations; for example, using a USB drive to copy files or emailing the information to themselves and then trying to cover their tracks by deleting the sent item. The damage this can cause is significant, but there are a number of ways, both practical and legal, to prevent this happening.

Prevention is far better than a cure and all agencies should consider implementing the following basic protections:

  • Mobile phones. Don’t allow your staff to use their own phone to access critical business information; for example, via an app or remote connection. Consider whether the agency should supply the phones with full administrative access rights and limits on data transfer. This allows you to keep the mobile number after they’ve left, so you can ensure client calls are answered by your agency.
  • File transfer restrictions. Consider limiting the ability for files to be transferred from your office computers onto USB drives. There are simple ways to set this up to apply to specific computers within your agency.
  • Email rules. Most email systems allow for the creation of rules to manage how emails are sent, received, blocked and organised. Consider implementing rules to prevent particular files from being sent. For example, you may create a rule that prevents “RentRoll2019.xlsx” from being attached to an email. You might also create a rule that automatically bcc’s yourself or another senior manager on an email if it contains more than a certain number of attachments or includes an attachment with a specific filename.
  • Printing restrictions. Consider placing restrictions on which files particular users are allowed to print.

Despite these steps, a determined employee may still find a way through. Include a number of dummy entries in your database that act as flags to alert you if your files have been taken. For example, you might include certain relatives or friends as clients and include their address or email. If they receive a letter or email from a competitor, then it’s probable your database has been compromised.

REEF’s template employment contract also includes a number of legal means to not only shut down an ex-employee’s misuse of confidential information and trace where it’s been sent, but also for financial compensation to be sought.

 

Post-employment restraints

Attempting to prevent an ex-employee from working with a competing business (non-compete restraint), soliciting your client (non-solicit restraint), poaching your staff (non-poach restraint) and updating social media profiles to broadcast the details of any new employer (social media restraint) can be extremely complex.

However, one thing is clear. To succeed in legal proceedings to restrain an ex-employee from unfairly gaining a competitive advantage over your business, you must have contractual terms agreed with the ex-employee upon which you intend to rely. If there are no written restraint provisions, you’re left with only a limited ability, at best, to challenge an ex-employee’s post-employment conduct.

Including post-employment restraints in the contracts of employment for operational employees can be vitally important down the track to protect your agency’s goodwill. Don’t listen to the words of the ill-advised who proudly proclaim that “post-employment restraints aren’t worth the paper they’re written on.” Without them, your ability to bring a recalcitrant ex-employee to account is seriously diminished.

 

Take steps to protect

REEF’s template employment contract contains robust terms offering sound post-employment protections. It’s been tested before the courts when REEF members have commenced restraint proceedings against ex-employees and it’s held up to legal scrutiny.

But words on paper alone may not be enough to protect your business. There are also some important actions you should take to dramatically increase your chances of restraining an ex-employee from nefarious conduct.

 

1. Choose your restraints carefully

It’s important to carefully consider your business interests and what restraints should be included in any contract for a new staff member.

For example, it’s probably not appropriate to include the same restraints in the employment contracts for the receptionist and junior property manager as you do for senior sales staff and management. It may look like overkill.

With a more junior member of staff, consider whether it’s sufficient to protect your sales and property management assets through the use of a non-solicit restraint and a social media restraint. The use of a non-compete restraint might be limited to more experienced members of your sales team and members of your senior property management group.

 

2. Choose your words wisely on termination

It’s important to carefully consider your words (and those of your senior managers) when speaking to a departing employee.

Tempers can be frayed and actions can be heated. Avoid off-the-cuff remarks about your restraint rights and make sure all members of the management team have a clear and consistent approach.

You don’t want a situation where one manager is sending positive and good luck messages to an employee leaving to work for a competitor down the road, while another is attempting to ramp up the enforcement of the non-compete restraint.

 

3. Act consistently

Post-employment restraints are said to be legal obligations between the employer and employee. However, in reality, how you’ve treated other staff with similar restraints who have left can strongly influence your ability to enforce these obligations.

Where you exercise your post-employment rights inconsistently, you’re essentially sending a message to your staff (who may resign at some point in the future) that your business interests aren’t really that valuable.

 

4. Don’t wait

One of the worst things you can do if you’re looking to enforce a post-employment restraint is delay.

It’s essential to act quickly. This doesn’t necessarily mean heading straight to court. The common approach is to write to the ex-employee and require that they urgently agree to cease and desist, and provide an undertaking to comply with their post-employment obligations.

If they refuse, then you need to decide whether you want to enter into negotiations with them or commence legal action to seek an injunction to restrain future conduct.

It’s a case of “if you snooze, you lose.” The courts have a rule of thumb that unless you’re before the courts within approximately 14 days, then don’t bother coming unless you have a good excuse.

REEF RECOMMENDS – If you become aware of a post-employment breach, you should take steps within seven (7) days.

 

5. Don’t withhold any termination pay

Where you fail to abide by your clear obligations under the employment contract, the risk that your post-employment rights will be unenforceable is considerable. It will be open to the ex-employee to argue that your conduct is a fundamental breach of the contract.

REEF RECOMMENDS – Every departing employee should be given a ‘Duty of Good Faith’ post- employment letter. This letter is a reminder of their contractual obligations to the agency following their termination. You can download a template letter from the People Management System. Go to reef.org.au to login, click on the ‘Termination Docs’ tab and select ‘Reminder – Post Employment’.

 

Need guidance?

If you have any questions about post-employment restraints, contact REEF on 1300 616 170 and one of our Workplace Relations Advisors will give you the answers you need.

 



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About REEF

The Real Estate Employers' Federation is the real estate industry’s leading not-for-profit employer and workplace relations advisory association. It has more than 1600 members and subscribers across Australia.

Each year, REEF receives more than 15,000 calls from real estate employers needing help and guidance on matters affecting the employment relationship.

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