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A recent case has seen the pendulum swing
yet further in the favour of employers in obtaining an injunction to
prevent defecting employees from stealing your business. In the past
12 months the courts have been more willing to uphold restrictive
covenants. Now it appears the Courts are also willing to consider
other grounds for seeking an springboard injunction which, until
now, had normally been limited to abuses of confidential
information.
The claimant was a wealth management business which had recently
acquired a stockbroking business of which the Defendant had managed.
Most staff, including managers, had transferred to the claimant
including the Defendant and had signed new contracts of employment
upon doing so. Many of the stockbroking firm’s clients transferred
to the claimant as well.
The contracts of employment contained restrictions preventing
employees from setting up a competitive business for a specified
period of time and from soliciting clients and staff.
Resigned
The defendant became disillusioned with the claimant and resigned.
In doing so he negotiated an agreement about the period of his
restrictions. Once that period had expired he set up a competitive
business. Thereafter 75 staff of the claimant defected to the new
competitive business en masse. The claimant sought an injunction to
prevent the defendants (which included some of the defected senior
managers) from gaining an unfair advantage in relation to
confidential information and solicitation of the claimant’s clients.
The application for an injunction was successful the court making a
number of inferences based on the facts of the case. It concluded:
- A springboard injunction was not confined to cases where
former employees threatened to abuse (or were abusing)
confidential information. It was also available to prevent any
future or further serious economic loss caused by former
employees taking advantage of their own serious breaches of
their contracts of employment or if acting in concert with
others of any breach by any of those others.
- It was inherently unlikely that whole departments should
leave en masse without collusion between them all. It was also
unlikely that they would leave secure positions with the
claimant unless assurances had been made that others from the
claimant were also defecting and that they would be bringing
with the client’s of the claimant’s. Such assurances could only
have happened with the active and knowing encouragement of
senior managers of the claimant.
- There was sufficient evidence to infer that the Defendant
must have know what was going on and probably initiated that
course of conduct and that the senior managers had also had
involvement in the defections and that this was a breach of
their duty of fidelity and good faith to the claimant by
remaining silent.
What do I need to know?
This case strengthens the Employer’s position in tackling unlawful
behaviour of defecting employees’ such as leaving without notice,
removing confidential information, conspiring with other employees
to leave, poaching customers and other staff.
It is critical that you have in place contracts governing the use of
trade secrets and confidential information as well as restricting
solicitation of customers after the event. Such clauses need to
carefully drafted to avoid being to wide and rendered unenforceable.
Advice
You also need to take advice and proactive measures when you have a
senior employee departing in order to protect the business. Further
if you suspect there is unlawful behaviour there can be no delay as
this may prove fatal to obtaining injunctive relief.
Copyright 2006 - 2010
Taylors Solicitors
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Halting
an Employee Conspiracy