Career Advice Legal Case studies for employers

Don't let your business get fried by en masse poaching

The Situation
At this time of year, with bonuses being calculated for payment at year end, many employees start to turn their minds towards thinking about new opportunities. For some employers, this can raise the spectre of “team moves”. This is where several people leave around the same time either because they have been poached en masse by a competitor, or because they intend to set up on their own in competition with their former employer.

This can obviously cause significant disruption, and put confidential information and customer relationships at risk. Given the potentially serious consequences, employers should have relevant strategies in place.

The Action Required
If a business suspects that its employees are being poached or are planning to compete, it is important it acts quickly to minimise or counter the risk to its operations. It is common, however, to have no suspicion of an impending team move until people start resigning, As such cases usually involve a degree of coordinated advance planning, it is also very possible that, by the time resignations occur, departees have already taken significant preparatory steps.

The employer must find out more. Once resignations are handed in, employee interviews, urgently convened, are a first step in finding out information and determining whether resignations are connected. Other team members can be consulted to find out if they, too, have been approached. Steps should be taken immediately to freeze or cut off e-mail access, and e-mail records should be examined – with a view, of course, to data protection and privacy obligations.

As an employer gathers an understanding of the circumstances, it needs to consider whether any wrongdoing has occurred which could form the basis of legal action. In addition to express contractual provisions, it is well established that employees owe implied duties towards their employers. Certain acts, therefore, could breach a duty of good faith. The general position is that an employee is permitted to attend interviews, accept a job offer and make preliminary arrangements necessary to enable him to join the new company. Anything which goes beyond mere preparatory steps may, however, be in breach of his obligations to the existing employer.

The employer also needs to consider how to proceed vis-a-vis departing colleagues. It can often be helpful to issue a formal reminder of any contractual obligations which exist both during the relationship and following its cessation. The business may invite or require the employees involved to provide formal undertakings that they will comply with their obligations going forward.

A departee who has no intention of breaching the duty of good faith should have no issue with this. Conversely, if someone resists signing requested undertakings, this may indicate an intention to breach. It can also be useful to notify the competitor of the obligations owed by its new recruits, and seek comfort that breach will not be induced.

In many team-move scenarios, matters will not need to progress far beyond this point and the issues will be settled amicably. Even if the former employer does not intend to take further action, letters to its former staff – and in some cases, the competitor – can discourage misuse of confidential information or breach of post-termination restrictions. In certain cases, however, it will be necessary to take more drastic action, such as seeking injunctive relief.

There are various preventative measures that can be put in place to discourage team moves from occurring in the first place. Contractual restrictions for senior or key members of staff are important. These can take the form of a substantial notice period, garden-leave provisions, post-termination restrictive covenants, an obligation to disclose any approach by a competitor, and an express restriction on the use of confidential information.

The Conclusion
There is no doubt that a team move can have serious consequences. There are, however, steps that an employer can take to minimise the risks and reduce the impact on the business. If an employer becomes aware of a potential team move, it will always need to react quickly, and should at an early stage assess whether it is necessary to take formal legal action.

Fiona Loughrey has headed Simmons & Simmons’ award-winning China employment group since 1999.

Sarah Berkeley has extensive experience in advising on employment and discrimination issues, and has worked at the firm since 2001.

The information contained in this article should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. If advice concerning individual problems or other expert assistance is required, the service of a competent professional adviser should be sought.