How to protect your IP being stolen by your employees

My employee’s would never do that!

It is true to say that the majority of people are not thieves in the sense that they will plan to steal someone else’s property. However, it is surprising to learn how many of us are opportunistic thieves. If a wallet was left lying on a table containing a wad of cash how many people would pocket the cash and how many would hand it in to the police station in the hope of a reward?

It is the same with an business’s intellectual property. If you leave your IP totally unprotected the most innocent of employee will see no wrong in using that property for their own gain to set up in competition. The chances are that they were partly responsible for creating that IP, so in their own minds they can justify the theft. It is then a small jump to walking out the door with your most valuable assets.

That is, unless you very clearly tell them that it is yours and mustn’t be stolen.

How to protect your IP

The best way to protect your IP is with properly drafted contract clauses in your employment agreements. There are various types of clauses each of which serves a very different purpose:

• Non competition clause – this is the clause which protects you from employees working for your competition whilst they are still employed by you. Clearly, if an employee holds a concurrent job with your competition then the risk of IP passing hands is very great.

• Confidentiality clause – the law only offers limited protection to employers from unauthorised disclosure of confidentiality. However, it is possible to strengthen that protection by drafting a tighter clause in your employment agreement.

• Protection of Intellectual Property Clause – this clause spells out who owns any IP created by the employee during the employment and puts in place a procedure for ensuring that ownership of that IP is registered in the name of your business.

• Non solicitation clause – this type of clause prevents your employees stealing your clients or other employees when they leave your employment. Your client base is probably your most valuable asset alongside your employees. Both assets deserve a special clause to protect them in your employment agreement.

• Restraint of trade clause – sometimes you will need greater protection than all the above clauses can offer. It that is the case then a restraint of trade clause is the way to go. What this says is that an ex employee cannot work for a competitor after leaving your employment. Such clauses are usually limited by a time period or a geographical locale. Such clauses can be combined with a long notice period and an ability for you to require that the employee not come not work during the notice period (“a garden leave clause”) for added protection.

Does your employment agreement have all of these clauses and are you sure they adequately protect your interests?

Do I need all these clauses?

There are lots of burglar alarms on the market each offering different functionality and priced accordingly. Some simply sound an alarm on break in, others have movement sensors all around the house, while others are linked to the local police station or security firm offering round the clock protection. Which you chose to protect your valuables will depend on how much value you put on your possessions and your assessment of the risks.

Contract clauses are the same. The type of clause you need will depend on how sensitive the information is you want to protect and the type of employee who has access to it.

For example, an office administrator may have access to sensitive information indirectly through his work but may pose a low risk of setting up in competition to you or passing on information. In that case you may decide that only the following clauses are necessary:

• Non competition

• Confidentiality

A person employed in research and development however poses a greater risk. You may want the following in this case:

• Non competition

• Confidentiality

• Protection of Intellectual Property

• Restraint of trade

For a sales person with regular access to your client base you would include all the above plus a non solicitation clause.

Why they need to be well drafted

People invest in burglar alarms for two reasons:

1. To keep intruders out – the deterrent effect;

2. To catch the culprits.

Your contract clauses must do both too. They must be worded sufficiently well not only to stop the opportunistic thief but also to hold up in court should you ever want to enforce them.

There are a number of laws surrounding protection of IP and what you can and cannot say – for example, all restraint of trade clauses must be reasonable. If your clauses fall foul of the law they may act as a deterrent to the ignorant employee but certainly won’t hold up in court.

But I don’t have that many secrets

If you are thinking that you may not need well drafted contract clauses at this stage of your business, think again. As your business grows so will your IP. However, your original employees (those that can cause the most damage) will continue to be employed under their original employment agreements. Plan for the future and make that investment now.

Don’t invest in cheap contract clauses

So, if you want to avoid the shock, rage and then regret when an employee steals your intellectual property, invest some or all of these well drafted contract clauses:

• Non competition clause

• Confidentiality clause

• Protection of Intellectual Property Clause

• Non solicitation clause

• Restraint of trade clause

Carry out an audit of your agreements now to see whether you are properly protected.


Six years old sounds a peculiar time to start to legal career, but that's the first memory I have of going to my Dad's law firm located in the heart of legal London. So, with law running in the family, the natural choice at University was a law degree. I also had a keen interest in Sports Law and obtained a Post Graduate Certificate in the subject from Kings College London. I came to New Zealand for a year, but like a lot of people I quite liked the place, and I'm still here practising law ...

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