James Libson, partner, Mishcon de Reya
Opinion: Broker battle judgment highlights recruitment woes
10 May 2010
The judgment in the long-running feud between rival inter-dealer brokers Tullett Prebon and BGC Brokers over the poaching of Tullett staff was handed down on 18 March.
The High Court held that BGC and two of its senior executives had committed conspiracy and inducement of breach of contract in connection with the recruitment and attempted recruitment of teams of Tullett brokers.
The case arose out of a recruitment drive by BGC, led by a former Tullett employee, during which teams of Tullett brokers were approached and offered substantial sign-on payments and ’forward contracts’ (contracts that take effect once obligations towards a former employer expire).
Thirteen brokers signed contracts; three of them later changed their minds. To facilitate early release from lengthy fixed terms (preventing some brokers from joining BGC for at least another two or three years), a number of brokers, backed by indemnities from BGC, claimed that they had been constructively dismissed by Tullett and as such were entitled to walk away before the expiry of their contracts. In April 2009, Tullett obtained an injunction preventing BGC from approaching any other employees of Tullett until after the trial, and preventing those brokers who had already agreed to move from joining BGC for the same period.
The High Court held that BGC and the two senior executives had acted unlawfully, in that they had induced brokers to breach their contracts, including manufacturing constructive dismissals, and conspired to use desk heads to recruit their desks in breach of their obligations to Tullett. Mr Justice Jack also held that, to protect Tullett, in most cases 12 months was an appropriate period for the brokers to be kept on garden leave and out of the market, leaving them free to join BGC shortly, and that the injunction preventing BGC from approaching Tullett staff should remain in force for another 14 days after the judgment.
When the hysteria and the lurid evidence are put aside, the case has not, in fact, altered the law relevant to team moves. It does, however, demonstrate the difficulty in achieving successful team moves lawfully. The tactics used to poach teams are not unusual, frequently engineered to try to ensure there is no breach of individual employees’ non-solicitation clauses in their contracts. This may be achieved by first approaching the most senior member of the team, and then the remainder of the team, which will tend to follow its leader. Provided fixed terms and/or notice periods are adhered to and (this may prove more difficult) no team member is involved, directly or indirectly, in soliciting anyone else, there will normally be no breach of contract. However, if employees collude in a mass exodus, or indeed smaller-scale departures, and if the recruiting employer is assisting or encouraging such collusion, the employees may be faced with claims for breaches of the implied duties of good faith and fidelity, and in some cases for breaches of fiduciary duties, and the competitor with claims for inducing those breaches.
Rebuilding teams and client relationships can take years. This case highlights the need for employers to take steps to try to prevent team moves, particularly in industries where the departure of one or more teams can cause a serious hit to profits. Such steps include having well-drafted team move restrictions in employment contracts, staggering the expiry of contracts within teams and including obligations on employees to inform their employer of any approaches made by competitors.
The case is the latest example of the courts’ increased willingness, in the right circumstances, to uphold restraints of trade, such as garden leave, against employees for what may be significant periods of time. Presumably, BGC is hoping that the former Tullett brokers who have been prevented from working for the past year will be able to get up to speed relatively quickly. If not, it is an expensive way to recruit.