Likes, invites and injunctions: social media usage and restrictive covenants

February 2022 | EXPERT BRIEFING | LABOUR & EMPLOYMENT

financierworldwide.com

The past few years have seen an uptick in job moves, as individuals have discovered new priorities and opportunities as a result of (or in spite of) lockdown and the global coronavirus (COVID-19) pandemic. In addition, the continued global development of technical and niche industries and sectors results in competition for often highly specialised talent.

This means that the negotiation, interpretation and enforceability of post termination restrictive covenants have been thrown into sharp focus as employers and partnerships seek to limit the ability of departing employees and partners immediately entering into competition with them. In addition to employment contracts and partnership deeds, restrictive covenants are also often found in sale and purchase agreements, in incentive and share plans, in carried interest arrangements and shareholder agreements. Such covenants are typically enforced by way of injunction, against the individual and, on occasion, the new employer.

The default position under English common law, however, is that all ‘restraints of trade’ are unenforceable as a matter of public policy unless they: (i) are necessary to protect a legitimate business interest; (ii) are no more than is necessary to protect that interest; and (iii) are reasonable in scope and extent. The crafting of covenants has therefore become an art between balancing their deterrent effect on departees (and their new employers) and ensuring they have at least a fair chance of being enforceable.

While often simply referred to as ‘non competes’, many different covenants are used, ranging from non-solicits and non-poach, to those prohibiting team moves and absolute bans on contacting clients. A business needs to consider exactly what it is that it is trying to protect, the position of the particular individual in question and the appropriate time limit, geographical scope and subject matter scope. A senior partner with close regular client contact as a key part of her role who is also a substantial shareholder will be held to longer, more extensive covenants than a junior compliance analyst.

Once negotiated and agreed, covenants remain relevant on an ongoing basis: to ensure that they are refreshed as appropriate to track an employee’s changing role and seniority, to ensure broad consistency across the document suite (for example share plans), when an individual departs to understand what restrictions can be upheld and enforced, and when hiring new employees to understand what covenants are enforceable and how to comply with them.

The widespread use of social media, by businesses and by individuals, adds another layer to this already complex web of considerations, as well as creating some traps for the unwary. Platforms such as LinkedIn, Twitter and Instagram, to name but a few, are an effective and inexpensive tool for businesses to communicate with, and market to, prospective and current clients, as well as a forum for identifying new talent. Similarly, individuals can utilise these forums to strengthen their own personal brand, connect with clients and explore opportunities in the market.

On the other side of the coin, social media can also be exploited by departing personnel to solicit clients, poach employees or even set up a competitive business. Do typical covenants stand up in such circumstances?

Once upon a time, a business’ client lists and contact details were safely locked in a cabinet or held exclusively on a work computer. The increase in social media usage by businesses and individuals now means more proprietary information is in the public domain, and there is greater public disclosure of data through visible connections, followers, comments and detailed profiles. Even with privacy settings, one can easily find key information on a businesses’ key clients, employees or investors with a swift search online. Individuals subject to post-termination restrictions can also retain and freely access vital business information through their personal social media accounts both during their employment and after they have left an organisation.

It is customary for personnel to be contractually required to return or destroy confidential information in their possession on termination, but in practice this rarely extends to social media accounts held in their own name (often under a personal email). Restrictions that prevent an individual’s access and use of social media are also likely to be too broad to be enforceable. A departing employee will, therefore, still be able to access this information after they have left an organisation.

So can this information still be protected and how does this impact the enforceability of restrictive covenants?

A key case on the use by a former employee of information available on social media – East England Schools CIC (trading as 4myschools) v Palmer and another (2013) – showed how the court will adopt the same broad principles to the changing technological landscape of the workplace. A recruitment business sought to enforce a six-month non-dealing and non-solicitation restriction. The former employee argued such covenant was not enforceable because “with the increasing use of the internet and social media, all relevant information is now in the public domain, and so cannot be confidential to any particular agency”.

The court recognised that even though many details about candidates and employers were publicly available (including their identities, addresses, phone numbers and qualifications), the ex-employer still had other valuable information about clients that was not publicly available, including information about their personalities and special requirements, which she could exploit to solicit business from her former employer. In short, it found there was still a legitimate business interest to protect, and upheld the covenants.

All covenant cases are very fact specific, however, and so employers need to be live to the information and connections to which individual employees are privy through their social media accounts and take active steps to mitigate against the misuse of this information post-termination. A social media policy can be a useful tool in setting clear expectations with individuals both during and after an appointment.

Social media can also assist employers in tracking ex-employees and identifying breaches of covenant. In what is a true story, an individual who joined a competitor in breach of his non-compete made the situation obvious when he announced his new role on LinkedIn and his communications with new colleagues and clients were public.

But competitive activity on social media will not always be so transparent. This is particularly true in the case of the solicitation of clients, customers and employees, all of whom are readily visible and contactable on social media. As a non-compete can be harder to enforce, a robust, well-crafted non-solicitation provision can be an effective weapon and deterrent against opportunistic poaching of key business connections or colleagues. When it comes to seeking to enforce restrictions, or navigate compliance with a new employee’s obligations to a former employer, the key question is therefore: what does it mean to ‘solicit’?

As ever, there are no strict rules or guidance to follow, and cases will be judged on their facts. In most cases, a form of positive action and intention is required. Simply informing a client, customer or employee that you are leaving will, most likely, not fall foul of a non-solicit restriction. Untargeted social media activity is therefore generally not deemed a breach of a post-termination restriction. But there are many fine lines to tread and the ease and extent of social media communications introduces further ambiguity and opportunity. A court will always take into account the wider circumstances and there will be times when communication through social media will amount to solicitation.

Finally, a new employer may not know what steps a new hire (subject to relevant restrictions) has taken behind the scenes that could expose it to risk. When on-boarding a new individual, it is vital to understand from the outset what restrictions the individual is subject to and whether they are potentially enforceable. Armed with this knowledge, both individuals and employers should then seek advice on how to navigate those restrictions before any announcements are made on social media.

As social media becomes more entrenched in working life, businesses must understand and adapt to the challenges (and opportunities) posed by such forums, including when drafting, enforcing and complying with restrictive covenants.

Dorothy Murray is a partner and Nicola Bartholomew is special international labour & employment counsel at Proskauer Rose (UK). Ms Murray can be contacted on +44 (0)20 7280 2055 or by email: domurray@proskauer.com. Ms Bartholomew can be contacted on +44 (0)20 7280 2151 or by email: nbartholomew@proskauer.com.

Dorothy Murray and Nicola Bartholomew

Proskauer Rose (UK)