Team moves: how to defend your business

Two judgments handed down at the tail end of last year examined the remedies available to employers who are faced with team moves, whether the threat comes from an established competitor, as in one case, or a start up, as in the other. Team moves can happen very quickly and often prove extremely damaging to a business. This can be particularly so in recruitment businesses where close-knit teams, or desks, are built around the leadership of an individual team leader. Here we explain what happened in each case and the remedies that were available to the wronged employer.

The first of our two cases, Re-Use Collections Ltd v Sendall and May Glass Recycling, serves as a useful reminder of the importance of effectively implementing new employment contracts so as to ensure that restrictive covenants are enforceable, as explained below. In this case the High Court considered a number of the protections open to employers in the absence of enforceable restrictive covenants. 

Mr Sendall had worked for Re-Use for many years without a contract of employment. He eventually signed and entered into an employment contract in February 2013, before resigning on two months’ notice at the end of March 2013.  On 2 April 2013, Mr Sendall’s two sons, who also worked for Re-Use, each gave one week’s notice of resignation and became directors of May Glass Recycling, which actively began trading in competition with Re-Use at the end of April 2013.   

Re-Use’s investigation into this uncanny series of coincidences established that Mr Sendall and his sons had been plotting to set up May Glass in competition with Re-Use for some time.  Mr Sendall had been using his role at Re-Use to search for suitable locations for the new business and had intentionally failed to sign suppliers up to long term contracts so that they would be free to be poached in due course.  He had also been soliciting suppliers and customers of Re-Use on behalf of May Glass. Mr Sendall had done all that he could to conceal his involvement with May Glass, but ultimately, the directors of Re-Use challenged Mr Sendell by appearing unannounced at his office to confront him with the allegations against him.

Re-Use successfully applied for interim injunctions against both Mr Sendall and May Glass to prevent further breaches pending trial, relying on Mr Sendall’s duty of good faith and fidelity, fiduciary duties and the restrictive covenants contained in his recently-signed employment contract.

Re-Use next sought redress by bringing a number of claims against Mr Sendall in the High Court. It sought to rely on Mr Sendall’s duty of good faith and fidelity, fiduciary duties and the restrictive covenants contained in his recently-signed employment contract.

Mr Sendall countered the claims against him with a claim for constructive dismissal on the basis of the directors’ confrontation of him.  This was given short shrift by the court: because of the nature of the allegations, it was imperative that no notice was given to Mr Sendall of the meeting as in all likelihood he would not have attended and would have fled with documents belonging to the company.  Given the circumstances, the court also held that, in any event, Re-Use would have been entitled to dismiss Mr Sendall summarily for gross misconduct. This does, however, serve as a useful reminder of how to conduct investigations into alleged team moves: any action by an employer in fundamental breach of contract risks the enforceability of post-termination restrictive covenants.

The court found that the restrictive covenants in Mr Sendall’s contract were not enforceable because Mr Sendall had not received any consideration for entering into his new contract of employment.  Re-Use argued that a pay rise in January 2013 and the extension of employment were sufficient consideration, but there was insufficient evidence that the salary increase was linked to the new contract which contained the restrictions. The importance of providing employees with clear and valuable consideration in return for signing up to new contracts part-way through their employment cannot be stressed enough. Making the signature of new contracts a condition for receiving an enhanced benefit, pay rise or bonus is the clearest way to ensure that you do not get caught out by this.

Re-use argued that, as a senior employee, Mr Sendall owed fiduciary duties to the company.   Fiduciary duties are heightened duties owed by directors and those of similar standing within a business.  The court held that although Mr Sendall was clearly very senior in the company, he was not a director, had not been involved in board meetings, and that there was no express provision in his contract consistent with him owing fiduciary duties.

Plainly Mr Sendell’s actions were in breach of his implied duty of good faith and fidelity. The court held that Mr Sendall was in clear breach of this duty as his actions had gone well beyond preliminary steps to compete and constituted real arrangements for competition.

The court also considered whether the interim injunction had been reasonable considering its finding that his restrictive covenants were unenforceable and that there was no breach of fiduciary duty.  The court held that even though Re-Use had not been entitled to seek relief on the basis of a breach of covenant, Re-Use would have been entitled to a springboard injunction. This would bean injunction imposing a moratorium on competitive activity to cancel out the unlawful head start Mr Sendall enjoyed at May Glass by acting in breach of his duty of good faith and fidelity.

 Re-Use had no claims to bring against Mr Sendall’s sons as it had no evidence of any wrongdoing while in employment and their contracts did not include post-termination restrictions on which Re-Use could rely.  However, Re-Use was able to bring claims against May Glass (of which all three were by then directors) in tort. The first of these was inducement to breach. The court rejected the claim that May Glass had induced Mr Sendall to breach his contract with Re-Use.  The only relevant breach was the breach of the implied duty of fidelity and good faith and this was in fact a decision taken by Mr Sendall before May Glass had been incorporated.

Re-Use was more successful with a claim for unlawful means conspiracy. The fact that three employees of Re-Use had acted knowingly together with the real and dominant purpose of damaging Re-Use’s business by diverting business away from it was sufficient evidence of this tort.  Accordingly damages were awarded to Re-Use.

Our second case involved a competitor using a ‘recruiting sergeant’ from within the target business to entice away a whole team of employees. In A T Kearney v Baigorri and Oliver Wyman Ltd, a former employer who had been the victim of a team move sought an interim injunction against Mr Baigorri and Oliver Wyman Ltd to prevent further poaching of staff.  Two of A T Kearney’s employees had resigned with the intention of moving to Oliver Wyman, and it became apparent during their notice period that they were in contact with Mr Baigorri, an employee at Oliver Wyman, and were attempting to orchestrate the exit of more employees from A T Kearney.   A T Kearney lost a further 5 employees to Oliver Wyman Ltd by the time that it brought its interim injunction application.

In contrast to our first case, the court here was in little doubt that Mr Baigiorri had been knowingly induced to breach his employment contract by Oliver Wyman. However, the respondents argued that as events had already taken place and the employees had left A T Kearney, there was no need to grant urgent interim relief. 

The court rejected Oliver Wyman’s argument as it did not consider that the ongoing risk had been quelled by there being a lapse in time since the last incident of poaching.  It also held that damages would not be an adequate remedy for A T Kearney and as such, an interim injunction was granted. The court also considered that this would cause the least overall harm in the circumstances. If an injunction was not granted and further employees moved to Oliver Wyman, it would be a cause of serious harm to A T Kearney and, indeed, comparatively more harm than would be caused to Oliver Wyman by an injunction temporarily preventing unlawful recruitment.

The court here demonstrated a desire to protect employers who have been the victims of an unlawful team move by imposing an urgent interim injunction where there was little pressing urgency to do so as the moves had already been made.  Having obtained the interim injunction, it would also be open to A T Kearney to pursue a claim in damages. For employers who find themselves losing staff to competitors, this case reinforces a very effective means to stem the tide.

These two cases illustrate the ways in which the courts approach team move cases. The quicker an employer acts when faced with a team move, and the broader the range of effective claims at its disposal, the more effective any relief from the courts will be.

RE-USE COLLECTIONS LTD v (1) KEITH SENDALL (2) MAY GLASS RECYCLING LTD [2014] EWHC 3852 (QB)

A T KEARNEY FZ-LLC v (1) JAVIER BAIGORRI (2) OLIVER WYMAN LTD (2014) QBD (Simler J) 18/12/2014