Battle loyal

With litigation arising from team moves on the rise, Paul Goulding QC and Diya Sen Gupta look at how cases in this area are not providing a definitive path to judgment

Team move litigation appears to be on the rise. The current economic climate may be part of the reason for this. On one hand, poachers can acquire a ready-made business unit with a loyal client base without the need to build a team from scratch; on the other, victims of such raids are increasingly resorting to an array of legal remedies that the courts have recently demonstrated a readiness to grant.

One recent high-profile case involved an attempt by inter-dealer broker BGC to recruit a number of brokers from rival ­Tullett Prebon. The dispute spawned four hearings over a two-year period, including a full trial on liability. This was followed by a lengthy and important judgment from Mr Justice Jack, as well as a visit to the Court of Appeal, before the parties reached a ­settlement in April, some weeks into a ­subsequent trial on remedies.

Tullett Prebon plc & Ors v BGC Brokers is not the only recent team move case to find its way into the law reports, but it does highlight a number of topical points that frequently arise where one or more employees jump ship to join a rival business.

Show and tell

One question that has exercised ­employment lawyers and courts alike for some time is whether an employee has a duty to tell their employer that they have been approached with a view to joining a competitor. A duty of this kind could arise from an express term in the employment contract or be an implied duty. Judges have recently pronounced on both express and implied duties to disclose such an approach.

In Tullett, the judge said that, as far as a desk head was concerned (one who was in a senior and responsible position), there was nothing wrong in them responding to a recruitment approach. But if their contract states that they must report that approach to their employer, they are obliged to do so.

Such a provision does not operate in restraint of trade. This is important. It is now clearly prudent for employers and their legal advisers to review employment ­contracts to ensure, wherever possible, that they contain express terms requiring ­employees to disclose to their current employers approaches from prospective employers.

So what if there is no express term in the contract requiring an employee to disclose an approach? And when, if at all, is such a duty implied – perhaps as part of the ­established implied duty of good faith?

In a recent unreported case, Kynixa Ltd v Hynes & Ors (2008), it was held that a particular employee was under an implied duty to report to her employer that she and other employees were moving to a ­competitor. The decision caused some ­concern among employment lawyers and was thought to represent the high water mark of the implied duty to disclose an intention to join a competitor being imposed on ordinary employees.

Those concerns have now been allayed, at least to some degree. The judge in Tullett thought that the Kynixa decision was made on its particular facts. And in another recent team move case, Lonmar Global Risks Ltd v West & Ors (2010), a different judge went further. He stated not only that Kynixa was confined to its facts and was not deemed an authority for a broad disclosure duty, but also that if he was wrong about that he would still not be minded to follow it.

The chances of an implied duty to ­disclose an approach being held to exist will be greater where the employee owes their employer fiduciary duties (rather than a contractual duty) of loyalty. This will depend, in turn, on the precise terms of the ­employee’s contract and the nature of their responsibilities under that contract.

To be continued

These cases are unlikely to represent the last word on this issue, nor on a number of other issues in team move cases. These include: when an employee can claim to be constructively dismissed as a result of ­pressure their employer applies to persuade them to reject the rival’s overtures and stay put; when the new employer will be liable for inducing the recruit to break their ­existing employment contract; the effect of the new employer offering the recruit an indemnity, a signing-on payment or a ­forward contract to commence the new employment a long time in the future; and how long an injunction might last keeping an employee on garden leave and what the interplay is between garden leave and a post-termination restrictive covenant.

These and other issues will continue to engage employment lawyers and the courts for as long as companies seek to poach their competitors’ employees and target ­companies seek to resist these raids.

Paul Goulding QC and Diya Sen Gupta are barristers at Blackstone Chambers