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Halting an Employee Conspiracy

» Posted on: 31 October 2008
» Posted by: Oliver McCann
» Service area: Employment

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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.

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:

  1. 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.
  2. 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.
  3. 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.

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.

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