Inducing a breach of contract
- Usually, this is where the new employer (although it could be a recruitment consultant, for example) is aware that the employees they are poaching are subject to certain contractual obligations and/or post termination restrictions, and the new employer induces them to breach those obligations and/or restrictions. The new employer can then be on the hook for the breach, and more often than not the ex-employer will prefer to pursue the new employer rather than the ex employee(s) alone. It may be difficult to prove, however, that the new employer had actual knowledge of the contractual restrictions and intended for there to be a breach.
Taking action
After the existing employer has identified grounds for pursuing a legal claim against its former employees or the new employer, it should consider what action to take in order to prevent or lessen any damage caused by the team move.
Legal options include:
– Sending letters before action to departing employees or those who may be suspected of joining the team move; and/or
– Applying for an interim injunction to enforce express or implied terms in the employees’ contracts, such as a prohibition from working for competitors or with team members; and/ or – Applying for springboard injunctive relief to stop the ex-employees or the new employer from gaining an advantage because of their unlawful behaviour; and/ or
– Pursuing legal proceedings in order to obtain financial remedies such as compensation, an account of profits or damages; and/ or
– Negotiating a settlement with the former employees.
When deciding how aggressive to be in trying to prevent the team move the business will need to consider the impact on any prospective customers and its reputation in the market place.
Steps to protect your staff from poachers
Precautionary measures employers can take to prevent a competitor from poaching staff include:
- Providing incentives to highly valued employees to remain with your business (but making the incentives payable over time and providing that they will be forfeited if the employee chooses to resign – often in the form of “good leaver”/”bad leaver” provisions);
- Providing new career development opportunities to staff; and
- Having the following provisions in staff’s employment contracts: – clauses that require the employee to show a prospective employer the restrictive covenants that the employee is bound by, and to let you know when a job offer is made and by whom;
– contractual obligations that mirror fiduciary duties (eg. an obligation for an employee to report their own misconduct as well as that of another employee); and
– provisions that specifically hamper team moves.
Employers should consider which restrictive covenants are appropriate to include in their employees’ contracts, such as non-compete, non-solicitation and non-dealing provisions.
The restrictive covenants must be reasonable and no wider than is necessary, otherwise an ex-employee may be able to complain that the covenant is in restraint of trade and not enforceable. The use of garden leave and the potential claw back of bonuses can also be great tools in reducing damage to the business.
The law relating to team moves is highly complex, particularly in financial services, and legal advice should be taken if you are looking to recruit a team or suspect that your business may be under a competitive threat.
Laura Conway, Senior Associate and employment law specialist,
Wedlake Bell LLP Olivia Ufland, Trainee, Wedlake Bell LLP
