Team moves: the practicalities

Dentons

Employees are undoubtedly one of the, if not the, most valuable assets of any business. Without employees, a business simply cannot operate. 

However, whilst employees are an essential component of an employer's business, they can also pose one of the biggest threats when they decide to leave and take up employment with a competing business. This is not least because of the significant harm that can be caused by the misuse of confidential information or the exploitation of client relationships established during the employee's employment. 

This threat is magnified when a number of employees resign en masse, resulting in a team move scenario. Naturally, therefore, employers will want to ensure that they are in the best position possible to take action in the face of a threatened team move.

What is a team move?

Typically, team moves involve an entire team of employees moving from their existing employer to either (i) join a competitor of the business, or (ii) set up on their own in competition.    

Losing a team can be devastating for an employer. Not only does it create the risk of, among other things, losing key client relationships and the exploitation of confidential information or trade secrets, but it can also mean that the business is losing a highly skilled and successful team. There is also a very real possibility that the departing employees may try to solicit other employees who have remained with the business following the team's departure.

Legal issues

Quite often there is fine line between a lawful and unlawful team move. Invariably, they create a number of legal issues for the existing and new employer, and the departing employees. In particular, co-ordinated team moves will often result in potential breaches by the exiting employees of the legal obligations owed to their existing employer. Typically, these include: 

  • express contractual clauses – confidentiality clauses, disclosure of misconduct clauses, garden leave clauses and post-termination restrictions; and
  • implied contractual duties – duty of good faith and fidelity, duty of trust and confidence, and fiduciary duties (in respect of senior individuals).

How do employers protect themselves?

When a business is faced with a raid on its employees by a competitor, it is vital that it is able to protect itself against the potential significant damage and disruption as best as possible. 

Restrictive covenants

Arguably, the most powerful shield against the competitive threat posed by a team move are enforceable post-termination restrictions. Non-compete, non-poaching of employees and 

non-solicitation of and non-dealing with client provisions tend to feature heavily in team move litigation. As such, it is essential that these restrictions are properly drafted, if they are to be relied upon.

In some circumstances, a set of legally valid restrictive covenants in the exiting employees' employment contracts may be sufficient to deter at least some members of the team from joining a competitor. 

Garden leave

The ability to exclude departing employees from the workplace during their notice periods can be extremely valuable in a team move scenario. Putting an employee on garden leave helps reduce the risk of them poaching existing clients as, essentially, they should no longer be in contact with them. Exclusion from the workplace also means that the employee will have limited or no access to confidential information. 

Disclosure of offers clause

It is common for employment contracts of senior employees to contain a clause which requires them to disclose an offer of employment by a competitor to their existing employer. A failure to comply with this contractual obligation would likely be considered a breach of contract by the employee, which could prove useful if litigation is commenced in response to the team move.

Evidence

It is clear from recent team move cases that there must be tangible evidence of wrongdoing by the departing employees. Suspicion will not be enough to establish an unlawful team move. It is therefore vital that, as soon as an employer learns of a potential team move, it acts quickly and begins to gather evidence. Emails, text messages, WhatsApp messages, Instant Messages and phone logs will all be key. A careful and thorough investigation that produces evidence of unlawful conduct by the departing team will help put an employer in a strong position to achieve the protection it needs to prevent or mitigate the damage.

Overall, a business faced with a team move should ensure that it puts in place, without delay, a clear strategy which has been considered from both a legal and commercial perspective.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.