[EP 020] Google’s Bad Case of the Ex: Uber important lessons to learn about exiting employees

How did it all begin?

This issue dates back to the beginning in 2013 when a fellow by the name of Anthony Levandowski was the star of Google’s self-driving car project. Less than four years later, it’s all gone pear-shaped, and now the love has gone (as happens sometimes). And this ended in Google filing a lawsuit accusing Levandowski of taking incredibly valuable intellectual property from Google to his now current employer, Uber.

Google’s lawsuit is based on a series of alleged actions by Levandowski in the days leading up to his exit from Google. Google claims that back in to December 2015, Levandowski installed specialized software on his company laptop, loading it with 14,000 confidential files about technology that was integral to driverless cars and driving. According to the court documents filed, he took extraordinary efforts to raid his employer’s server and then conceal his activities.

Then the following January (i.e. January last year), it’s alleged that he told colleagues about plans that he had to replicate the technology of his employer at a competitor. Within a week of those discussions, he visited Uber’s head office and then the following day he created a start-up business called Otto. A fortnight later he resigned from Google and then seven months later, Otto was sold to Uber for a staggering price of $680 million USD. That’s a lot of money! (even before you work out that Aussie equivalent)

Understandingly, Google was just a teensy bit annoyed. Obviously, this is a fairly extreme example of what can go spectacularly wrong for businesses where IP is very important. But the warnings apply equally to all businesses that have knowledge or data that they don’t want competitors to have. And this data also includes the concept of customer lists, client lists and also lists that you may not think of as important but potentially that might be if they were in the hands of a competitor, like for example client lists, supplier lists and those sorts of things.

Common issues with exiting employees

I’m approached by business owners all the time who are mopping up the mess after employees have left and taken clients or gone to a competitor and used knowledge learned during their employment. Or perhaps they’ve kept in touch with old clients through social media like LinkedIn, which is a new issue isn’t it now that we have to deal with within our businesses how do our restraints apply to social media. Or I’m approached by business owners who have had employees who have taken information out of computer systems that they’ve had and then gone to start up their own business or started up their own business with a similar business name. We’ve had that quite a few times. Or where exec employees have taken client list and had sales teams in their new employer specifically target those clients knowing the background of what they’ve spent with the ex-employer. And in some recent cases I’ve even seen ex-employees who had been engaged in fraud with that fraud has been revealed after the point that they’ve left.

These are just a few examples of those sorts of issues that our lawyers within Aspect Legal see regularly and a list of possible problems that we’ve actually seen is massive. That’s just the tip of the iceberg in terms of what can happen. And out of these I think the most relevant one for all organisations to consider, we’ve been approached about again and again, is the theft of clients or client databases or actually the approaching of ex-employees to clients of the business.

How can a business protect itself?

There’s a number of ways that I’m going to talk about, four ways in total. We’re going to talk about contractual protections. We’re going to talk about a business protecting its own IP. We’re going to talk about what you can do at exit at the time an employee exits. And finally we’re going to talk about some greater staff development type matters.

Get contractual protection

Firstly, contractual protection. What can you achieve through a contract? The sorts of clauses that you should be seriously thinking of having in your agreement with your employees (if they’re not there already) are these:

1. Confidentiality clauses

That’s an obvious one. Obviously you want to protect the confidentiality of anything within your business, but also the confidentiality of information that comes into your business that isn’t owned by the business. And by this I mean often businesses will deal with clients and as part of that dealing with clients we all need to have access to confidential information of their clients and indeed the business itself might be subject to contractual clauses that regulate what happens and the confidentiality restrictions that relate to that information that the organisation has.

It’s really important that organisations 1) make sure they’re not signing contracts with third parties that have confidentiality obligations that are greater than what you have for your own staff, and 2) you need to make sure that your confidentiality obligations that you’re imposing on your staff are broad enough to cover the types of risk for loss of confidential information that might exist in your business.

Now it can be quite difficult to prove that someone has taken or used confidential information in breach of their confidentiality obligations which is where we then come on to some of these other clauses that we can use within our agreements.

But one warning that I would give is don’t assume that this area is not provable because we’ve certainly acted on many matters where we’ve been able to get great results for our clients in pursuing ex-employees or other third parties who have misused confidential information.

The first thing with confidential information protection is to make sure you have your clauses there in the first place so that you have a basis for following up in the future if something has happened that you believe is in breach of those confidentiality obligations because it’s a sad day when a client comes to us for assistance in enforcement and we have to tell them that clauses that they’ve had developed in the past by other solicitors or perhaps that they have just created themselves aren’t sufficient for the protections that they need for their organisation.

The important thing is making sure those clauses are sufficient and relevant and appropriate for the business that you’re in and the risks that impact the business that you’re in and your organisation.

2. IP ownership clauses

This is where we very clearly in our clauses set out where intellectual property assignment happens. In an arrangement between an employer and employee the base level contractual position even if it’s not reflected in the contracts is that the employer will own all of the intellectual property created by the employee. But this is not the base arrangement when you’re dealing with contractors. It’s very important that you have a clause like this particularly in agreements with contractors or other third parties who are creating intellectual property for you. And indeed even in an employment relationship sometimes it can be unclear about what intellectual property that has been developed forms part of the employment relationship vs. intellectual property that sits outside of the employment relationship.

By clearly setting this out in your agreements you’re setting those boundaries as broad as is appropriate in the situation for what intellectual property is considered to be intellectual property that is owned by the employer. These IP clauses are very important.

And the other thing that you should generally have there if it’s appropriate for your business is a moral rights release clause as well. That’s something else to think about in these intellectual property clauses.

3. Clauses on restraints

The third area to think about in terms of contractual protections is making sure you have restraints within the agreement that relate to any ex employers or employees on termination taking staff or being involved in an organisation that has taken staff from your organisation.

We also need to have restraints on taking clients and we need to make sure these restraints are broad enough to capture ways that employees or ex-employees might be doing this. Often I see in employment agreements, we have these clauses set up so that you’re restraining the employee after employment from doing any of these things themselves. But you also want to make sure they’re restrained from doing these things as manager of another organisation or that they have to ensure that any organisation that they have ownership in or beneficial ownership (it may not be direct ownership but it might be beneficial ownership in) has the same restrictions.

You can do that fairly easily through your clauses. You just have to make sure that these clauses are drafted in a broad enough way.

And then another contractual protection that you might consider, that’s not always appropriate that might be appropriate however, is restraints on competition.

This is one of these areas where I have seen it done poorly both in it not being done broadly enough or being done too broadly because the broader that you create a restraint against employees upon termination, doing things in competition with your organisation, the broader that is drafted the more likely it is that it won’t be enforceable. It’s all about understanding what’s appropriate for the particular employee that you’re dealing with if and indeed making sure that as that employee progresses in seniority that you have reviewed these areas, made sure that you have increased some of the breadth of these clauses where it becomes appropriate. Because often we’ll say that non-competition, for example, might not be appropriate for junior staff but it might be appropriate for very senior staff or staff who have connection or special connection with particularly confidential elements of your business.

It’s not just about considering where the staff members are when they come on board with you. It’s also about considering whether or not that is appropriate as they rise through the organisation. And once again those restraints as well must be broad enough to capture ways that employers might breach these clauses not just themselves but also through businesses that they might own or have set up or have beneficial owner in or through their roles as employees or managers or indeed just helping someone else to do something that might end up being something that you would want to restrain.

Are these clauses enforceable?

Some people ask me if these sorts of clauses are ever enforceable because there’s certainly a myth out there that many of these restraints are simply not enforceable. And I’ve seen many cases where the courts have ruled that indeed they are enforceable.

As I said before it’s all about ensuring that you have them drafted appropriately because it’s certainly true that courts have struck out these clauses in the past where they’re not appropriate. It’s about drafting them in a way that they are appropriate and are enforceable. Even if you’re not sure if they’ll be enforceable, sometimes these clauses can still have merit because it is communicating with your employees what your expectations are of them and it gives you the ability to point to something as they leave to show them what they have agreed to in the past.

The way I look at agreements is not just a document that you might want to pull out and use to whack someone if they’ve done something that you feel is wrong or indeed not even just for litigation purposes at the end of the day. You have agreements even if you wouldn’t be interested in litigating someone because agreements also help to make it clear what the expectations are between the parties.

And of course when you’re having that first interview where you’re on-boarding a new staff member, you don’t necessarily always want to be talking in detail about these areas. Although sometimes, if confidentiality is important to your business, it is a good idea to have those discussions right in the beginning. But having these elements set out clearly in an employment agreement (and when I say clearly I mean in a way that the employee will understand them when they read them as well – that’s a really important element), you’re creating this when they leave. And indeed during the period that they’re employed as well.

One other thing that you might consider from a contractual perspective is considering post-employment social media connection restrictions. One of the issues that we have today with social media is even when employees leave our organisations, they might still remain connected to key players in our organisation or key clients, key staff, key suppliers so if that is an issue to you then ensure that that’s covered in your employment agreement or in your exit interviews or both ideally. That’s the first way business can protect itself through contractual protections.

Get your IP protection in order

The second way business can protect itself is by taking proactive steps to protect its own IP appropriately. Sometimes through commercial measures and sometimes through legal measures.

Trade mark registration

One legal measure is to for example protect brands through trade mark registration and the benefit of the use is it’s easier to take action against an ex-employee or their organisation if they’re starting to use brands that are similar to yours which we have seen over and over and over again. It’s easier to take affirmative action here, an assertive action, if you’ve got your protections in place right in the beginning.

Trade mark registration is something that you should be thinking about for any brands that are important to your business. You should also think about commercial ways such as locking down information and making sure you’ve looked at information in your business and made an assessment about whether people need to have access to the sort of information that they have access to within your systems, making sure you obviously have password protection and ways to protect your systems from being entered by staff who don’t have the appropriate authorities.

Secure sensitive company information

You also need to think about saving information in ways that it can’t be taken. For example client databases, rather than sitting in an Excel spreadsheet sitting somewhere that’s accessible to all employees or even to some, it might be better to put those spreadsheets within a software system where you can control access, you can lock down access immediately upon hearing that any employee is leaving and restrict any downloadable access by staff members. That’s a great way of still being able to give access to information, but without that information being able to be easily exported by ex-employees because this is a key issue that we hear again and again and again clients being concerned that their ex staff members or staff members have taken copies of confidential information.

You really need to think about other than obviously making it clear that that’s inappropriate. But if they’re doing that, then I think let’s be clear they probably understand that it’s inappropriate anyway. You need to also be taking measures to ensure it can’t happen or to make it difficult for employees to be doing that. At some very large organisations that we deal with, have these issues as ongoing issues so it’s important for all organisations to be wary of this as an issue because there are actions that you can take.

Copyright notifications

The other areas that you can protect your own intellectual property appropriately is by putting copyright notifications and other notifications on important documents so you’re being clear from the outset about copyright ownership. It’s just another flag that will go off in people’s heads if they’re considering copying it and also having clear guidelines about what staff can and can’t do with information and sometimes this sits in company policies and sometimes this relates to having discussions with staff about what your expectations of them are.

Plan conversations and paperwork upon exit

The third area a business can protect itself is by the behaviours that you display on exit of a staff member. You should be having exit interviews and reminding staff of their obligations and you should be doing this in a meeting together with them face to face and you should also be doing it in writing. That’s a really important step and it’s really easy to put in place all you do is set up a system within your office for what you’re going to do as part of the exit system for staff members, which you have to do anyway which includes the obvious things that should happen immediately, like for example locking down confidential information removing access to various databases or areas within your business and then having these discussions about reminding them of their obligation.

And don’t forget to change your payroll and stop paying them as well. We’ve certainly had a few instances of organisations who have forgotten that and for a period of time after an exit by a staff member continue paying them. Don’t get yourself in that spot because that can be quite hard to recover funds after the fact in those instances.

Get interested in your staff

And the final tip that I’m going to give in this area in relation to how a business can protect itself is simply by getting interested in what your staff want to develop in their faith in themselves and for their own futures.

Staff don’t always stick around forever. This is just the reality of business. And if we understand that and meet that head on and we agree that it’s healthy for them that they grow and that they want to leave and do the next thing then we can come at it from the perspective that perhaps if we help them identify what they want for their future and help them to get there then they’ll be leaving with a higher level of goodwill than if we didn’t participate in that. And I think this is true even if they see their future outside of the business.

My approach is always that we should be doing our utmost to develop our staff to help them achieve the things they want to do and while they’re within our business environment we want them to be helping us to reach the goals that we have for our own businesses. But from that longer term perspective they’re going to be more motivated to do that and show more goodwill at the exit if we’re really helping understand where they want to get to in helping them get there too.

Common objections

What if I often hear many objections to some of these things that I’m talking about. Although, I have to say that these objections only ever come from organisations before they have had the first really big taste of what it can feel like for an employee to leave and take staff or confidential information or client bases do things that damage a business. So for anyone who hasn’t had that happen yet and isn’t sure whether or not they can be bothered to go through each of these steps that I’ve been talking about, what are the things that I hear?

Are long and complex documents necessary?

I hear people say that they don’t want long and complex documents so they perceive that each of these things that I’ve talked about from a contractual protection perspective will require a lot of complexity in documents and will require a long document. That’s absolutely not true.

If you don’t want long complex documents, fine don’t have them. Just make sure you consider the critical elements for your business. Don’t just always work from a pro forma and sometimes I see these letter of appointments that are one or maybe one and a half pages long. Even with staff we’re dealing with highly confidential information or have access to client databases or supplier databases. And I just think it’s an opportunity missed to not be clear in these documents about what your expectations are in these areas.

I think one page is probably too short because you can’t get these elements in there but documents that are a few pages long any employee will be able to read. You don’t have to make them long and complex to get each of these elements in. You just need to make sure you’ve thought about what’s appropriate for your business and make sure they’re covered in some way, even if not in detail.

Technology is your friend

Other feedback that I’ve had from organisations who are scared about putting these provisions in place relates to the access of customer databases.

I want to reiterate here I’m not saying that you should restrict all of your employees from having access to customer databases. Often there’s very good reasons why you need your employees and your staff to have access to customer databases. But what I’m saying is use technology. Technology is your friend. Don’t put all of your information into Excel spreadsheets that are widely available and let’s face very easily copyable. What you want is information stored in ways and using technology to ensure that information is stored in ways that makes it harder to download harder to extract and easier for you to lock out people that don’t need to have access or after the point that they realized that they’re going to have that they’re going to exit the business so they don’t have access at that point.

Exit interviews don’t need to be uncomfortable

And finally the other thing I often hear is in relation to my point about exit interviews. I often get feedback that people just don’t like to have uncomfortable discussions and they perceive that these discussions at exit are going to be uncomfortable. Well my answer to that is don’t make it confrontational and it doesn’t have to be uncomfortable.

You’re not being confrontational or you’re just simply stating their requirements and reminding them of the obligations and you can do it in a very nice way in a very non-confrontational way but still doing it.

You have a duty to protect the business information and your client information. It’s your duty to get this right. Otherwise you’re letting down yourself and you’re letting down the stakeholders in your business. I think it’s important for you to have these conversations and if you don’t like confrontation then don’t make it confrontational. Find a way that you can talk about this in a non-emotive way and it certainly doesn’t have to be emotive. It’s just sensible.

Because even though a staff member taking your IP might not be a 680 million dollar problem like it was for Google it might be a problem big enough to break the business or set its growth back by years.

Quick recap

Just in a quick recap in this episode we talked about Google, Uber and how to protect a business from employees taking important intellectual property and we talked about our action steps which as a quick recap are the following:

• Get your contracts in order. Get your confidentiality clauses clear and lock down. Make IP ownership and protection clear. Make sure you have restraints in your contracts against staff taking and dealing with clients and staff and make sure you have reasonable competition restraints. If these are appropriate and they may or may not be appropriate but that’s a consideration that you need to have each time.
• Get your IP protection in order.Register your brands as trade mark. Secure your IP and make ownership clear with copyright notifications.
• Have a plan for conversations and paperwork at exit. Set yourself up a system to make sure you can replicate it again and again and again. You don’t need to have to remember that these discussions need to be having upon exit of a staff member.
• Get interested in your staff and help them to get what they want from their future, even if it’s without you.

Thank you so much for tuning in. I hope you found that useful and informative. If you’d like more information about this topic, head over to our website at talkinglaw.com.au for a free transcript of this podcast episode. If you liked what you heard but you were driving along or at the gym or taking a walk and weren’t able to take notes, you can go to that podcast episode on our talking law website and you’ll be able to download a copy of the transcript of what I talked about today. And there you will also be able to find the contact details of our lawyers at Aspect Legal if you’d like help with any of the items we covered today, whether that’s tuning your contracts, IP protection or just general discussions about how this topic is relevant to your business and how you can implement some of these strategies within your organisation.

And finally if you enjoyed what you heard today I’d be most grateful if you could possibly pop over to iTunes and leave us a review. That’s all. Thanks again for listening in today. And see you next time on talking law. This has been Joanna Oakey.