Recent High Court case makes team moves more difficult
Most recruitment companies understand the importance of enforceable restrictive covenants and confidentiality obligations. Without them, recruitment businesses risk key business relationships (and revenues) walking out the door with departing employees. The problem is all the more acute when employees take colleagues with them.
Team moves, however, are different. They tend to be instigated by a senior employee, or ‘recruiting sergeant’, from within the business, whilst still employed. The courts have always struggled to reconcile such activity with an employee’s duties to his or her employer – a recent High Court case has made team moves even more difficult to execute lawfully.
In Thomson Ecology Ltd and another v APEM Ltd and others, a senior employee persuaded colleagues to leave their employer and join him at a competitor, with the intention of transferring the employer’s business to that competitor. The employee’s employment contract contained no restrictions on competing, soliciting staff or misusing confidential information. Nevertheless, it was held that his actions were unlawful. The employer relied on the implied duty of good faith and fidelity, a duty implied into every employment relationship by law. The employee:
- Failed to inform the employer of the risk of a poaching raid by a competitor
- Actively assisted in the raid by identifying target staff and meeting with them to discuss offers from the competitor
- Shared confidential salary information with the competitor
There is an inherent tension in the concept of an employee resolving to leave an employer. Employees may take preliminary steps to set up in competition, but they may not actively compete. Fiduciaries (statutory directors and very senior employees) owe an enhanced duty of exclusive loyalty, but most employees are merely required to have regard to the employer’s interests. In this case, the employee did not need to be a fiduciary to establish a breach of the duty of fidelity due to the extent of his involvement in the raid, but the employee’s seniority (he was the operations manager) was important. By contrast, the court held that informing colleagues of his decision to join a competitor before informing his employer was not a breach.
This case is illustrative of the courts’ increasing dislike of team moves. Regardless of contractual provisions, the courts will not tolerate this level of deception and destabilisation by an employee, particularly senior employees with responsibility for more junior staff.
What this means for employers
While the implied duty of fidelity may now be enough to prevent employees from unlawfully competing while they remain in employment, whether a team move can be stopped in this way will ultimately be determined on the facts. For example, it remains unclear whether senior employees must report, and not encourage, colleagues’ dissatisfaction, and whether they may invite colleagues to join them at a competitor.
Anyone involved in encouraging or executing a team move will have to be mindful of these principles and seek appropriate advice. Further, this case will only assist in defending against team moves where the wrongdoing occurs while the recruiting sergeant is in employment. Employers therefore still need to ensure they are properly protected against post-termination competition, and should ensure that their contracts also spell out the standards of conduct and behaviour they expect from staff while in employment.
If you would like to discuss whether your employment contracts provide you with sufficient protection, if you are concerned about the activities of staff or if you are planning or involved in a team move, please contact Jennifer Millins.