Team moves and employment law

The recent economic turmoil has meant restructuring, downsizing and redundancies for many businesses. For others, however, it has provided an opportunity to expand and take on employees from faltering competitors. This may involve bringing over an entire team to compete with their former employer.

When an entire team moves from an organisation to join a competitor (or to set up on their own), there are particular legal issues. A team move will very often involve potential breaches of the duties that departing individuals owe to their employers and, unless handled carefully, the team could find themselves prevented from working in their industry until their old employer has had a chance to shore up its business.

Restrictive covenants

Contracts of employment, particularly for more senior employees, will often contain terms preventing employees from competing with their current employer, and from poaching clients and staff. Typically, these post-termination restrictions will last for up to a year after the end of employment.

These restrictive covenants can be valid and enforceable in certain circumstances – generally they must serve to protect a legitimate interest, they should be limited to the industry in which the employee works (and perhaps to a particular geographical area) and they should only last as long as is reasonably necessary.

Other duties

As well as these express post termination obligations, employees will also be subject to other obligations, including duties not to misuse their employer’s confidential information.

Many employees are likely to have garden leave clauses in their contracts of employment, which means that as soon as they resign, their employer can exclude them from the business for the duration of their notice period, whilst also preventing them from working for a competitor during that period.

Employees may be subject to further obligations depending upon their individual positions. Senior individuals such as company directors will generally be subject to fiduciary duties. These often go further than the normal rules on competing, including for example, a duty to disclose misconduct. This would mean that if an employee subject to fiduciary duties is planning a team move, he or she will often have a duty to disclose that fact to their current employer.

Remedies

There are a number of ways in which an employer may take action in response to a team move. It could seek an injunction to enforce its contractual rights, where those rights remain in force, which could ultimately prevent the team move from taking place until after the end of the restricted period.

It can also protect itself by applying for a “spring board injunction” to prevent an employer from taking advantage of an unlawful “springboard” obtained from previous unlawful misconduct.

As well as this, a former employer may be entitled to compensation for the loss it suffers as a result of departing team members’ breaches of their obligations.

Reducing the legal risks of team moves

There are a number of ways of reducing the risks involved in a team move. This will require a thorough review of restrictive covenants and expert employment law advice should be sought to avoid employees acting in breach of their obligations.

Employees should also take practical steps such as ensuring no incriminating evidence is made, team members are recruited separately and in the normal way, and no confidential information or property is removed or downloaded.

Often it will be difficult to carry out a team move without giving rise to any potential claims and the best way forward will be to reach a compromise with a former employer. Experienced solicitors are able to advise on negotiating an exit and signing off any releases or settlement agreements.

For more information call 020 7650 1200 today and speak to one of our expert employment lawyers.