Restrictive Covenants: Dealing with a team move

A “team move” is where two or more employees decide to leave your business. These employees will either go to work for a competitor, or set up on their own account. Quite often, there will have been coordination between the departing employees, and possibly with the new employer as well.

For a small or medium sized business, a well-executed team move could be devastating. It could cause an immediate cash flow problem, and in the medium term, the departing employees are likely to target key clients and contacts. There is also the human aspect that might well leave a sour taste. That is, you have employed two or more people, who have planned in advance, probably during work time, to undermine your business.

If you suspect that a team move is about to happen, or if it has just taken place, then there are steps to take to protect your business.

Step one: Identify the wrongdoing

The first step is to consider if any contractual terms has been broken, or are about to be broken. This is dependent on whether the team move was planned before, or after, employment terminated.

If the team move was planned before employment terminated

Your legal position could be quite strong. Many contracts, especially for more senior employees, include provisions that make a team move more difficult.

For example, there might be an express obligation to act in your best interests. This obligation might be broken, if an employee were to encourage others to leave and act in competition.

Further, many employment contracts (both senior and junior) contain the obligation that the employee shall not misuse confidential information. This might well restrict departing employees from using your important data, which would be required to compete.

There are also terms that are implied into all employment contracts, that might be of assistance. For example, the implied duty of fidelity, which has been interpreted to mean there is a duty not to compete, a duty of confidentiality, and a duty in certain circumstances to report wrongdoing.

If the team move was planned after employment terminated

Many contracts contain post termination restrictive covenants. These can be quite useful to prevent a team move even if it were planned after employment terminated. For example, you might have restrictions in place that prohibit working in competition with your business, soliciting clients, or poaching former colleagues.

Step two: Investigate and damage limitation

The next step is to investigate what has happened, gather evidence, and at the same time try to discourage others from leaving as well.

You could:

• talk to remaining employees, who worked with those who have left. These employees may have some insight concerning whether confidential information has been taken, the plans that were made and when they were made. At the same time, you could remind these employees of their legal obligations, to try and discourage further resignations.
• interrogate your IT systems, telephone records and electronic attendance records. The results might indicate your former employees were sending confidential information to a personal email account, another business, or were making regular (and unexpected) contact with key customers outside of work time.
• instruct a forensic expert to examine your former employee’s work computer. A forensic examination might uncover whether USB sticks have been connected to the computer, and also which files have been accessed, downloaded and printed. This might be important evidence in any legal claim. Therefore, you should ensure any expert instructed is experienced, and has the relevant training to give evidence to the Court.

Step three: Commence legal action

You then decide whether you are going to take legal action against your former employees, or join in a third party, such as a new employer or a financial backer.

The first legal step is usually to write a cease and desist letter. This sets out the restrictive covenants applicable to the former employee’s employment, and the terms which has been broken. Normally, a cease and desist letter would  demands the former employee, or the third party, sign undertakings, or face court proceedings.

A well written cease and desist letter might cause your former employees, and/or the third party, to reconsider their position. But, that does not always happen. If you would like to take matters further, the next step is to issue court proceedings.

There a number of legal claims you could make against your former employees and/or the third party. These include:

• an injunction
• damages
• an account of profit

If you start legal proceedings, that might be enough to encourage your former employees, or the third party, to agree a sensible settlement. But, that does not always happen. If you commence legal proceedings, you do need to be prepared to engage in a potentially lengthy and costly exercise. For that reason, legal proceedings should be a last resort where all other options have been exhausted.

How can we help

If there has been a team move, then it is important to take legal advice as soon as possible. We can advise you on the options available, the risks of taking legal action and other steps you could take to protect your business.

For further information and assistance, please contact Sam Welham in the Employment Team on 01473 611211, or email [email protected]