Context:
Any creation or invention of the human mind which can be patented, trademarked, or copyrighted and attributable to either a creator or the Company/Entity that hires the creator allowing for its exclusive use sanctioned by law is known as Intellectual Property (IP). Many industries around the world, in particular the IT industry, thrive on innovation and intellectual property. World Intellectual Property Organization (WIPO) underscores the importance of a well-crafted IP strategy to maximise business potential. In a dynamic and competitive business environment, organisations must safeguard their proprietary information, especially during staff turnover, in order to protect valuable trade secrets and maintain their competitive advantage. This article aims to guide employers in the Indian IT/ITeS sector on strategies to shield intellectual assets during and after employee departures, drawing insights from legal precedents.
Laying the Foundation – Time tested Labour Law Practices:
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1. Background Checks:
It is important to conduct thorough background checks of prospective employees by obtaining references and clearances from previous employers, mainly to ensure the compliance of exit formalities of the previous establishment (return of company assets such as laptops, mobiles, documents, security clearance tools, etc.)
- 2. Onboarding Interview:
The onboarding interview serves as a critical juncture in safeguarding intellectual property (IP) rights within organisations. By meticulously vetting new hires during the onboarding process, companies can mitigate the risk of IP theft or infringement. This interview provides an opportunity for employers to convey the importance of respecting proprietary information and ensuring that incoming employees understand their obligations regarding confidentiality and IP protection. Moreover, it allows organisations to assess the integrity and trustworthiness of prospective team members, helping to weed out potential threats to sensitive data or trade secrets.
- 3. Confidentiality Agreements or NDAs:
Confidentiality Agreements or Non-Disclosure Agreements (NDAs) are a standard in the IT industry. These contracts expressly define the employee’s obligations to maintain confidentiality of the company’s proprietary information, the terms of which may extend beyond the term of employment.
- 4. Non-compete Agreements/Clauses
- In every well-drafted employment contract, chances are there is always a non-compete clause, which is nothing but a stipulation in a contract specifying that an employee must not engage in activities that compete with his employer during and after the cessation of the former’s employment.
- The clause must be reasonable in duration, scope, and geographical extent, as the concept is in a grey area as far as Indian jurisprudence is considered in the context of Section 27 of the Indian Contract Act.
- Non-compete clauses so far as are reasonable and are meant for the protection of IP are valid but anything restraining the employees from carrying out similar trade/business is void to the extent of such restraint imposed.
- 5. Robust & Comprehensive Training Programs:
- Ensure that the employees are aware of the company policies and procedures with regard to IP.
- Conduct regular awareness sessions on IP rights, imbibing a sense of ethics, by emphasising the consequences of IP violations.
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6. Exit Formalities/Interviews:
- An exit interview is just as important as an onboarding interview.
- Discuss the employees’ post-termination IP obligations.
- Retrieve company property such as laptops, access tools, and so on well in advance before the exit date.
- Document the exit process extensively to prevent future accusations and conflicts.
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7. Garden Leaves:
- One of the most underrated practices of them all is “Garden Leave”, which is a euphemism for the period during which the employee is on the rolls and paid a normal salary but is required to not attend work or involve in the day to day activities of the establishment.
- Chances of an employee being hostile and leaking sensitive information are at its peak when the employee’s employment term is just about to end.
- Sending employees on “garden leave” for a month or two before the termination of employment, not only helps them find new job opportunities but also buys the employer enough time to secure his/her IP.
Echoes from the Recent Past:
The aforementioned labour law and employment practices generally hold good around the world subject to a few exceptions. For instance, a case with reference to the Indian scenario:
- In this case, Wipro alleged misuse of their confidential information by a former employee and violation of their non-compete clause.
- The court ruled in favour of Wipro, upholding the contractual obligations imposed on their former employee, thus protecting their trade secrets.
- It is important to note that this order did not uphold the non-compete clause but mere temporary relief was provided during the pendency of arbitration proceedings between Wipro and Beckman Coulter International.
Conclusion:
There are numerous legal precedents that vindicate the fact that the aforementioned labour law practices help prevent or at the least mitigate the ramifications of IP breach as a result of staff turnover. Counterintuitively, the law regarding the protection of IP rights varies through borders around the world and it is imperative to remember that an establishment has to fine-tune their labour law practices subject to the jurisdiction they are situated in. As the Indian IT sector continues to grow, establishments must remain proactive in adopting and implementing these labour law practices to maintain their competitive edge and the outlined strategies will help employers navigate employee transitions confidently, protecting their intellectual capital and maintaining a secure business environment.
-Smrithy Suresh,
Advocate & Associate
