How to protect your client database from walking out the door

O*NO! Your employee has handed in their notice and you’re not sure what you can restrain them from doing once they leave. You’re worried that your secrets, client database and intellectual property may be at risk. So what do you do now?

Over the coming weeks, we’ll explore your options in situations where an employment contract doesn’t contain any post-employment obligations (stay tuned for parts 2 and 3). But for today, we’ll explore how to avoid this situation using employment contracts to future proof your relationships with new and ongoing employees.

Why future proof your employment relationships at all?

Put simply, to future proof your employment relationships means to ensure your employees will act in your agency’s best interests and not do anything to compromise your brand and client database - while they are employed by you and after you have parted ways. This way you can effectively safeguard your brand, assets, goodwill and everything that goes into making your agency uniquely yours.

It is important to consider from the outset what will happen when your employee leaves. The contract sets out the legal obligations and also acts as a troubleshooting guide if any issues arise. Make sure your contracts cover issues such as breach of restraint, trust, confidentiality etc. as these post-employment issues are more common than you think.

Key provisions for inclusion in a real estate agency’s Employment Contract

1. A restraint of trade clause

A restraint of trade clause should ideally operate to prevent a departing employee from:

• directly competing with you (starting their own competing business);

• stealing your clients; and

• recruiting your other employees.

These restraints are usually limited by a period of time, such as 3-12 months (depending on the seniority of the employee) and in real estate they are also limited by a geographical area in which the agency operates. Enforcing a restraint of trade clause is not always simple - but as a starting point you must be protecting a ‘legitimate’ interest and not overreaching, as at the end of the day your staff need to make a living when they leave you.

2. Establish who owns the Client Database & Intellectual Property

Whilst your employees need to be able to make a living once they leave, you don’t want them to be able to steal your clients. In real estate, your client database is the lifeblood of your agency and must be protected at all costs.

It should be crystal clear in the contract that your client data base and intellectual property is owned by you. In effect, this means the departing employee will be prevented from saying to you, “Hey, I brought in those clients, so I own my database and am taking off with it”. Set clear expectations up front to avoid this fight later.

3.Confidential information

Unlike restraints of trade subject to a time-limit, a good contract should protect your confidential information until the end of time. ‘Confidential information’ includes your client database, ‘trade secrets’ (information relating to your clients, pricing, costing etc.) and ‘know-how’, which is the knowledge of how you do something. Nailing the definition of ‘Confidential Information’ ensures you can lock down that client database.

How can I check that my employees are doing the right thing?

If you suspect an employee’s breach of restraint or confidentiality, the law allows you to investigate their email accounts and IT systems, but only after you give them 14 days’ notice. This is referred to as ‘workplace surveillance’.

Top agents will build ‘workplace surveillance’ into their employment agreements and workplace policies, so when employees first start with them, they are already ‘on notice’ that this can happen as and when the Principal needs it to.

You must be thoroughly familiar with what you can and cannot do by law when investigating an employee in this manner, so be sure to have a chat to your lawyer before doing a sticky beak.

Takeaway

When it comes to protecting your brand and shielding your assets, you need to consider whether your employees are on the same page as you and will act in the best interests of your agency.

An employment contract is a powerful tool and a good place to start with setting out your employees’ obligations.

Get it right from the start - ensure your employment contracts:

• impose ‘legitimate’ restraints to prevent former employees from acting against your interests;

• establish your ownership of your client database and IP;

• forever protect your confidential information; and

• set up your rights in relation to ‘workplace surveillance’.

Your next steps

Want to learn more about protecting your client database and IP from walking out the door with your staff? Ellen Bathgate and Kristen Porter are teaming up to run a FREE Webinar next week @ 10am 17 November 2020 to take you through it. Register now for FREE! Get in quick as spaces are limited.

Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.