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Employers should consider all the risks before they jump in at the deep end and take departing employees to court
As UK companies continue to suffer the effects of the recession, the growing litigious mindset is causing problems for employers and employees alike.
One trend regards ‘moving on’ cases, where there are two main types of claims that can be brought: breach of contract or breach of fiduciary duty.
Samantha Mangwana, a partner at Russell Jones & Walker, part of Slater & Gordon, says: “When a team walks, employers react by applying for an injunction to stop them in their tracks. Restrictive covenants, springboard injunctions and arguments about fiduciary duties get more complex. Yet both parties are often gambling in confusion. The costs risks are enormous and uncertain.”
The fact that decisions have gone both ways recently has made ‘moving on’ employment cases particularly interesting.
“Add to that uncertainty the need to make decisions with big implications (whether to apply for an injunction, on what grounds, whether to alert the defendant, whether to give witness evidence) at an early stage and the hefty financial consequences of calling it wrong, and this ramps up the stakes considerably,” she notes.
In the recent CEF v Mundey, the company took on 21 different defendants. “The High Court was not impressed,” says Mangwana. “It found that restrictions were drafted too widely and were in restraint of trade. The company could not find enough proof of a conspiracy to justify springboard injunctions. Suspicion was not enough.”
In Khan v Landsker, an employer sacked two employees after discovering a business plan they had emailed to pitch for investment in a competing business. However, as Mangwana notes, the Employment Tribunal’s decision didn’t go quite as expected. “The tribunal considered there was no breach of mutual trust and confidence in a mere idea. It would have been different if they had gone further and compiled client lists or disclosed trade secrets, but without more, this was unfair dismissal,” she says.
In Ranson v Customer Systems, although the High Court ruled in favour of the company’s claim that a salesperson wined and dined key client contacts during his notice period with the intention of competing for business at a future date, this was overturned by the Court of Appeal. “The Court of Appeal decided this was not in breach of his implied duty of fidelity owed as an employee, so the company lost its claim,” says Mangwana. “If he had owed fiduciary duties, the decision would have been the reverse.”
Given the recent rulings, Mangwana warns: “Employers should not reach for a boilerplate precedent, but assess each contract carefully and update restrictions to reflect increasing seniority.
“Perhaps the moral of the tale is this: before leaping for the springboard, suss out your strategy and how much it might hurt if you fall flat on your face.”