How to protect your business against a team move
Read Declan Bradley's article for TCii here.
How to protect your business against a team move - A Guest Article by Declan Bradley for TCii Strategic and Management Consultants
What is a team move?
A team move is when a group of employees move in concert from one employer to another. Team moves usually occur where a competitor convinces a senior employee to join their ranks or where the senior employee leaves to establish a competing start-up.
Prior to jumping ship or soon after, the senior employee then sets about convincing his colleagues in secret to join him at the new company. If he’s influential enough, there usually follows a series of staggered resignations from a specific team, or resignations en masse for the more brazen team movers.
Why should my business be concerned about team moves?
The point of a team move is to poach a high-performing unit of a business so that the competitor can gain an advantage. A common example that we come across is where insurance companies try to poach the main players from regional branches of their competitors. They first work on the branch directors, who in turn convince their account handlers, who have direct access to the clients, to join the competitor.
This can be devastating for the current employer, as they could potentially lose their entire regional business. Therefore, team moves are a significant business risk that should be considered as such and planned for accordingly.
Are team moves easy to pull off?
If you watched the popular US series “Mad Men”, about the New York advertising world in the 1960s, you may remember the scene where a team of advertising executives, discontented with their new employer after a buyout, conspire to steal clients and set up their own business.
They duly come in on a Sunday and cart out boxes of client files before starting their competing business on the Monday, having tendered their resignations to a fellow conspirator. Easy-peasy. Did they suffer any backlash? No sir. In the real world, however, such a move would be a very risky endeavour.
Some companies attempting to poach a team might be extremely careful. They might approach the relevant players individually, so that there is no conspiracy or breach of duty of any desk heads or team leaders, and they might give strict instructions to the individuals not to breach their duties to their current employers.
However, team moves rarely happen like that, given that speed is often of the essence, so that the move comes as a surprise and the current employer has little time to shore up its client base and workforce.
Companies at the receiving end of a team move will often have an arsenal of legal and commercial weapons available to them. Where current or former employees have stolen confidential information, the employer will have breach of contract claims to raise, injunctions to threaten, data protection issues to complain about and possibly reports to make to a relevant regulator – for example, in the financial services industry if the offending parties are authorised as fit and proper persons.
Prudent employers will also have restrictions in place to prevent competitive behaviour by their employees during employment and after they leave their business. There are lots of other implied duties and causes of action that they can call upon.
To help you understand the options available to you if your business is ever faced with the daunting prospect of a team move, there is more detailed guidance on these protections below.
Helpful protections for your business
The following are some helpful causes of action for defending against team moves. Just to be clear, though, every case is different, so the following is non-exhaustive and is only intended as a guide.
In team move situations it is strongly recommended that, before taking any steps, you engage an experienced advisor to guide you through the complex options and to help you develop an effective strategy to protect your business.
The employment contract
The first place to look when considering what obligations an employee may owe your business is their employment contract, often called a service agreement for senior executives and directors. A well-drafted employment contract will contain the following provisions:
This section will clearly set out that the employee must devote their time solely to your business and that they are prevented from holding any outside interests, except with your consent. Ideally, this provision should include an acknowledgement that the employee must not conduct any competitive action (whether directly or indirectly) at any time during their employment and should report any knowledge of competitive action to you.
Employees owe an implied duty of confidentiality to their employer during employment. However, this implied duty is much more limited after employment has ended and it only prevents the employee from disclosing trade secrets.
The employment contract should go further than that: it should set out a comprehensive list of information you consider to be confidential and should ensure that confidentiality duties post-termination are more extensive than the general implied duty.
The employment contract should also require the employee to deliver up, at your request and on termination of employment, any relevant information or company property (in whatever form) in the employee’s possession.These provisions could even go as far as stating that you will have access to the employee’s LinkedIn or other social media accounts in order to protect and remove your client contact details held by the employee.
Notice period and gardening leave
Senior employees often have notice periods ranging from three to six months. If you have a gardening leave clause, then you can effectively shut the employee out of the marketplace by making them sit at home for the duration of the notice period and talk to no-one about the business unless requested to do so.
Be careful, though, when putting employees on gardening leave, because if you do not have a contractual right to do so, the employee could say that you have breached the contract, that they are resigning with immediate effect on the basis that they have been constructively dismissed, and that any post-termination restrictions fall away.
In team move situations the enforceability of post-termination restrictions is often contested. Such provisions usually seek to restrict the employee for a period of three to twelve months from joining competing businesses,stealing clients, interfering with suppliers or poaching senior and commercially important employees.However, these restrictions must be drafted as narrowly as is necessary to protect a company’s legitimate business interests, and appropriate legal advice is essential when putting them in place. Any period of gardening leave that may be enforced may be taken into account when deciding on the length of the post-termination restrictions.
Intellectual property (IP) and data protection
When employees conspire to join a competitor, this often involves the use of or the removal of client data lists, or the removal of other employees’ details from the employer’s control, files or systems. If so, you may be able to rely on intellectual property rights, such as database rights, to add pressure on these employees if you have appropriate IP provisions in place.
Also, you may be able to point to breaches of data protection obligations as breaches of the employment contract, as well as being a potentially criminal issue under the Data Protection Act.
A comprehensive employment contract might also include a deductions clause. This allows an employer to withhold monies from salary or other payments owed to the employee because of loss suffered due to the employee’s material breach of contract. So where you have spent considerable legal fees dealing with an employee’s breach in light of an impending team move, there could be scope to use such a clause to add financial pressure on the employee.
Senior employees: fiduciary duties and duty of fidelity
Very senior employees, particularly those who are statutory directors of your business or who are at the coalface of client interaction at a decision-making level, will often owe fiduciary duties to your company.
Such duties mainly cover the fiduciary not creating any conflict with the company, not making a secret profit from their position, and giving undivided loyalty to the company, as well as confidentiality obligations. Fiduciary duties are often a key tool used against team move agitators.
Various terms are also implied into employment contracts. In team move situations, a relevant implied term for senior employees is the duty of fidelity. Essentially it means that the employee must serve their employer faithfully and not act against its interests. Conspiring to move a team, misuse of confidential information and giving a competitor an advantage, all while still employed, is clearly in breach of this duty.
Directors’ duties are statutory obligations set out in the Companies Act 2006. For the purposes of this article, it is sufficient to say that these are similar in effect to fiduciary duties. Where a director has breached his or her statutory duties as a result of a team move, you may, depending on the circumstances, be able to threaten disqualification proceedings.
Torts and claims against the competitor
Where exiting employees and their prospective new employer have conspired to gain an unlawful advantage over your business, you could have a claim of unlawful means conspiracy against both the employees and the prospective new employer.
However, a more common way of involving the competitor in proceedings is to claim that they knew about the duties owed by the individuals to your business and induced them to breach those duties.
Practical steps to protect your position
The first line of defence against team moves is to know when one is coming. Signs to look out for are:
The articles published on this website, current at the date of publication, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your own circumstances should always be sought separately before taking any action.