by January 2, 2003 0 comments

“As am contractor in the semi-conductor testing industry, I often play the David Vs Goliath contract game when dealing with big companies. They send me extremely one-sided services agreements in which I am supposed to accept unlimited liability, sign all Intellectual Property Rights forever, and give them the rights to terminate me at will, sue for consequential damages and demand that I perform the work in a specific way. My lawyer spends time re-writing these to make them clearer or fairer.

Yet, inevitably, I get the response: “This is a standard contract we have used for years with all our contractors.” How can this be true when these contracts are so unfair? Are they really standard contracts? ” 

A contract may be unfair when it is one-sided, or when the employee does not understand the document. A (the employer) insists that B (the potential employee) sign the terms of employment on the spot. By doing so, A deprives B of the time to comprehend the implications of the document or to seek legal advice. 

Tips for employers 
l Prepare the contract in simple English so that an employee can understand its contents 
l Check the provisions of any applicable awards and collective agreements
l Finalize the contract with the employee before he starts work
l Adjust any agreement to ensure it is consistent with the level and status of the employee 
l Give the employee time to review the contract and, if neccessary, obtain legal advice 
l Discuss ‘difficult’ issues with the employee to avoid subsequent disputes. For example, if the agreement contains restrictive covenants, explain these to the employee and give him the opportunity to negotiate them 
l Do not misrepresent the terms of the agreement to the employee. Explain any post-employment restrictions or other unusual
obligations under the agreement 
l Provide the employee a human-resources policy before he starts work. Get him to sign an acknowledgment that he agrees to comply with the policy. Enforce such policies consistently, or an employee may claim unfairness
l Review your contracts regularly to ensure that they are up to date, particularly when the employee is promoted or other
terms and conditions change 

Confidential information 
Courts imply an obligation into the employment contract that the employee must not use or disclose confidential information.

This continues after the employment ceases. However, the courts have a narrow definition of what information is confidential. Generally, it must satisfy the following criteria.

l It must be information unknown outside the employee’s business 
l Access to this information must be restricted within the business
l The employer must have taken steps to guard the secrecy of this information 
l The information must not be trivial in nature
l It must be valuable, ie, the employer must have spent time and money developing or acquiring it 
l It must be information that can not be easily acquired or duplicated by others

Generally speaking, the employer cannot protect the know-how and skill of the employee, which is required as a necessary consequence of the way the person’s employed and trained. It is important that employers specify in the employment contract what information is regarded as confidential and protected. For example, this may be achieved by attaching to the contract a list of information regarded as confidential. 

In the absence of an express agreement, an ex-employer is free to ‘poach’ the clients of an employer or to compete with his employer provided that in doing so the ex-employee does not breach his duties of confidentiality. An employer may restrict an employee by agreement, some restrictions being

l Limiting the employee from conducting certain work in a geographical area for a period of time or a combination of both; and/or 
l Limiting the employee from poaching the clients or employees of the employer

Such restrictions can be enforceable if they do not constitute an unreasonable restraint of trade. Reasonable means if it does not go beyond what is sufficient for the adequate protection of the employer’s business and is not unduly injurious to the interests of the employee and the public. The courts have recognized that an employer may have a legitimate interest in ensuring that old customers are not enticed away and that employers do not abuse confidential information. However, the reduction of competition is not a legitimate business interest. A determination of reasonableness is a discretionary matter and the court will look at the peculiar circumstances for each case. In particular, the court will consider the following. 

l What interest is being protected and is the restraint relevant to this protection 
l Does the employee have the ability to jeopardize the employer’s business 
l Does the restraint cover businesses, which the employee has not been involved in during the employment
l Does any geographical limitation extend beyond the area in which the employee conducts his business and which is at risk
l Is the time period of the restraint excessive? For example, will it have a substantial impact on the livelihood of the employee 
l Did the employee receive a separate payment as consideration for entering into the restrictive covenant
l What clients/confidential information did the employee have access to during the employment.

Rodney D Ryder (Advocate) is a consultant on trade and technology laws

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