A competitor poaching a team of employees can be devastating to a company's ability to carry on business and service its clients. Below is a summary of key points to consider in relation to a potential team move.
Identification and prevention
The scenario: You employ a senior employee. They develop a close professional relationship with their team. The senior individual leaves your employment. Several members of the team resign shortly afterwards. You understand that they are all going to work for the same employer.
Prevention/limiting damage key tips:
- Remain alert: Senior employees who intend to use the benefit of their influence after their employment ends will often leave quietly, by resignation.
- Ensure you have satisfactory protection: Particular teams (for example sales teams) may be more likely targets. Focus on tighter drafting and regular reviews of the contracts for those staff and include express garden leave terms as well as appropriate post-termination restrictions. Consider also longer and/or staggered contractual notice periods. Ensure that there are relevant express contractual obligations – e.g. a ban on outside interests during employment, and a requirement for the employees to report their own misconduct and that of other employees which comes to their attention.
- Listen to the grapevine: Clients or colleagues may give you valuable information at an early enough stage to aid you in identifying a potential team move. Make sure you secure valuable electronic evidence at the earliest possible time, before it is concealed or destroyed. Covert monitoring of an employee's use of the business's email, IT and telecommunications systems may be justifiable if there is reasonable cause to suspect wrongdoing.
- Employees leaving the business: Take reasonable steps to try to retain good employees who have said they are leaving. If nothing else it will help you keep the employment contract alive for longer.
If you need to take legal action:
STEP 1: Identify the contractual terms that give you protection:
The clauses you are likely to rely on include:
- any ban on outside employment or business interests during employment;
- duty of good faith/fidelity (which will be implied in any event);
- any fiduciary duty to act in the best interests of the employer (likely to apply only to directors unless expressly stated);
- garden leave;
- any terms which require the employee to disclose any approaches that they receive from competitors; and
- post-termination restrictive covenants.
STEP 2: Consider if there has been any breach:
Confidentiality obligations may well extend to sharing information about colleagues' pay, skills, contacts, attributes and experience.
Duty of good faith and fidelity
The more senior the staff, the greater the degree of loyalty, fidelity and diligence required. However, how far the implied contractual duty of fidelity extends depends on the facts of each case (QBE Management Services (UK) Limited v. Dymoke ). The duty of fidelity encompasses obligations not to compete with or disrupt the employer's business, and not to solicit or entice away other employees.
Do not overstate your position – know that:
- The implied duty of fidelity requires an employee to have regard to their employer's interests. They are not required to treat their own interests as subordinate to the employer's (unlike fiduciary duties) (Ranson v. Customer Systems plc  IRLR 769).
- Writing to the employer's supplier to ask for price lists before setting up in competition is unlikely to amount to a breach (Laughton and Hawley v. Bapp Industrial Supplies Ltd  IRLR 245).
- There is probably no implied duty on an employee to report their own misdemeanours (Ranson v. Customer Systems plc  EWCA Civ 841 and Bell v. Lever Brothers  AC 161). There is therefore an increasing trend towards express terms requiring employees to report their own misconduct as well as that of other employees which comes to their attention.
- Meeting with a customer and discussing future plans may not amount to a breach (Ranson v. Customer Systems plc  EWCA Civ 841).
Enforcing post-termination restrictive covenants
When considering enforcement of restrictive covenants consider:
- whether covenants which have been introduced or updated during employment (e.g. on employees being promoted or changing role) are supported by consideration;
- whether you can show the covenant is no wider than is reasonably necessary to protect your legitimate proprietary interests (usually confidential information, customer connection, and the stability of the workforce) – for example, whether a non-compete covenant is limited to the parts of the business with which the employee was materially involved;
- whether the duration of the restriction is justifiable by reference to the shelf-life of the confidential information or the frequency of the customer cycle (e.g. 12 months may be justifiable in the insurance industry, where policies are usually renewed annually); and
- how long it would really take for someone new to be trained and then to establish strong relationships with the customers serviced by the departing employees.
Points to note from Tullett Prebon plc and others v. BGC Brokers LP and others:
- contracts that only come into force once an employee's existing covenants to their former employer fall away are not unlawful;
- where prospective employers aid employees in fabricating constructive dismissal claims to help them in leaving, injunctive relief may still be granted; and
- a non-compete covenant that takes no account of the possibility of garden leave is not thereby made unreasonable but the court will take account of garden leave in deciding the extent to which the non-compete covenant will be given effect.
STEP 3: Enforcement and remedy:
Reasonable suspicion of a co-ordinated team move would be likely to justify disciplinary investigation and/or suspension. As part of such an investigation, consider requiring the surrender of company mobile phones for forensic investigation. It's surprising what can be retrieved from text message boxes and other messaging services such as WhatsApp – even including deleted messages.
Typically the next enforcement step may be a letter before action. This usually requests that the employee deliver up confidential information and enter into undertakings. These commonly include:
- not to use confidential information in the future;
- to disclose past use;
- not to commit further unlawful acts;
- to comply with express and implied contractual obligations during and after employment, including any post-termination restrictive covenants; and
- to preserve electronic and documentary evidence unaltered.
If no such undertakings are given, you will need to decide on the best course of action. This may include whether to embark on costly litigation. The following may be relevant to your decision:
- if damages are an adequate remedy the court will not grant an injunction – but will often accept that damages can be difficult to quantify, and therefore inadequate, in cases of unlawful competition;
- an account of profits can be a valuable alternative remedy to damages but only if there are fiduciary obligations (usually only directors);
- an interim injunction is designed to preserve the status quo pending a full trial;
- you may decide to apply for an interim injunction in the expectation of leveraging settlement negotiations well before the final trial;
- you will, however, need to give a cross-undertaking in damages, under which you will be liable to compensate the employees (and the competing employer if also sued) for any loss caused to them by the interim injunction if, at trial, the court decides it should not have been granted;
- a speedy trial is often ordered, telescoping the trial process, which might normally take 12 months or more, into just six or eight weeks, with costs being incurred at a very rapid rate; and
- a "springboard injunction" may be available in team move situations where there are no express post-termination restrictions. You would need to show:
- continuing unlawful conduct resulting in unfair advantage;
- the conduct will result in future serious economic loss; and
- the injunction is proportionate.
Before embarking on any proceedings, you should undertake a full appraisal of what losses (if any) arise from the alleged breach. You should also consider the likely enforceability of any duties relied on and the strength of the evidence compiled.
In a team move situation, the need to act quickly, but in a considered manner, is vital. Employees will commonly argue that their move is not in breach of their obligations to you, that they were unhappy, and were independently recruited without any unlawful collusion or conspiracy. Unlawful conduct may be difficult to evidence if the employees have been well advised and have been careful not to leave any electronic or documentary trail. Where genuine and significant loss is likely to be sustained, it may make sense to risk the costs of proceedings, but otherwise prevention or amicable negotiations to limit risk will usually be preferable. Appropriate commercial steps should get equal attention – e.g. what measures might secure or retrieve customer relationships for your business, even if the team move goes ahead unimpeded.
This article does not deal with the torts of inducing or procuring breach of contract or conspiracy to cause loss by unlawful means, or covenants in business sale, shareholder and other commercial agreements. However, all of these may well provide valuable weapons in combating potential team moves.