TEAM MOVES:
The Poachers Footprints
A lecture by Kate Payne, Kate Thompson and Lynne Kellett of Elborne Mitchell LLP
30 September 2014
These notes are derived from a talk by Kate Payne, Kate Thompson and Lynne Kellett of
Elborne Mitchell LLP, given at Lloyd’s Old Library on Tuesday 30 September 2014.
Where specific reference is made to the law, it is to English law as at 30 September 2014.
For specific advice on any issue referenced in this talk, please contact Kate Payne, Kate
Thompson and Lynne Kellett at Elborne Mitchell LLP.
Disclaimer: These Notes are for information only and nothing in them constitutes legal or professional advice.
They should not be considered a substitute for legal advice in individual cases; always consult a suitably
qualified lawyer on any specific legal problem or matter. Elborne Mitchell LLP assumes no responsibility to
recipients of these Notes.
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TEAM MOVES:
The Poacher’s Footprints
Introduction (Kate Payne)
At the beginning of this month [September] there was a lot of slightly hysterical debate about
whether or not there can be any such thing as a “Velvet Divorce” between Scotland and the
rest of the United Kingdom, particularly bearing in mind the passions aroused on both sides
of the ‘Yes’ and ‘No’ campaigns.
The victorious ‘No’ vote has, of course, meant that we don’t currently have an answer to that
question but back here in London the issue of how you achieve a “Velvet Divorce” has felt
pretty familiar to ‘Team Elbornes’ who are frequently involved on the employment front in
assisting both employers and employees in trying to achieve a smooth and bloodfree
separation, and particularly in a situation where a large team of employees de camps from
one company to another.
Now, when talking about ‘a team’ these do vary quite significantly in size and composition
but what they have in common is that they are a group of people who work successfully
together in a competitive market whose group dynamics and contacts make them more
valuable as a Unit rather than as individuals.
Similar to the arguments for Scottish Independence there are two main sides to the fence - on
the one hand, there are clear advantages for an acquiring employer (i.e. the poacher) to get
the people and the business in one fell swoop. On the other hand there is a corresponding
clear disadvantage for the employer who is losing the team (i.e. the gamekeeper) because, as
a result of a team defection, there is an obvious potential for substantial financial loss and
disruption in all sorts of ways to the operation of their business.
Despite the raw emotions frequently involved in a team move, it is always important to
remember that, in principle, an entire team move (from say one broker to another) is not in
itself unlawful. People are free to move from one job to another this is something people
tend to lose sight of.
However in order to avoid falling foul of some potential legal pitfalls associated with a team
moving, there are some rules which it is important for everyone involved to be aware of.
In the “Team Elbornes” presentation today, Kate Thompson will first run through a reminder
of the important obligations and duties to keep in mind in achieving a smooth team move.
Then Kate and Lynne Kellett will present a practical scenario intended to illustrate the dos
and don’ts from the three perspectives of poacher, gamekeeper and individual team members.
Lynne will then bring proceedings to a close by elaborating on the very important issue of
evidence. She will focus on some of the more colourful cases on the subject and, in
particular, ways to avoid the modern evils of social media (like Facebook and LinkedIn)
being your undoing!
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Obligations owed to an employer (Kate Thompson)
We are going to begin by talking a little about the obligations that an employee owes to their
employer. This information provides a vital backdrop to understanding how to conduct a
lawful team move.
There are three main sources of obligations that are owed by an employee to their employer:
1. An employment contract; and
2. Implied duties; and
3. Fiduciary duties.
Contract of employment
Firstly, we shall examine the most common obligations within an employment contract.
We tend to find that not everyone reads their employment contract in detail. This is surprising
as the employment contract is the primary source of the obligations that employees owe to
their employers. It is the document that shapes the employer and employee relationship so it
is important that care is taken to look at it properly. Important clauses, such as those relating
to notice periods, the timing of bonus payments and share schemes are likely to be included
in many contracts.
Many employment contracts in the insurance market contain post-termination restrictive
covenants. Typically, these aim to prevent ex-employees from:
(a)
(b)
(c)
Poaching former colleagues; and
soliciting clients; and
dealing with clients.
Restrictive covenants will apply for a stated fixed period after the employee has left their
employment which tend to range anywhere from 1 – 18 months.
Additional contractual duties that frequently arise are confidentiality obligations. These
normally prohibit the disclosure and misuse of any of the employer’s confidential
information. Unlike restrictive covenants, these are not generally limited in time but, rather,
on-going obligations that continue well past the termination of an employee’s employment.
So what is ‘confidential information’? It does not include trivial information, or anything
which is already in the public domain. But it can include information which you’re told is
confidential, or which is obviously confidential from its character. It can include lists of
clients; terms of business; and financial information – including details of salaries and
bonuses.
It is worth remembering that confidential information is generally commercially and
financially valuable, so employers will often go to great lengths to protect it. Therefore, it is
common to see express contractual restrictions confining its disclosure and use after
employment ends in a much more restrictive way than the implied duty alone imposes.
Less commonly, there may be an express requirement for the employee to inform the
employer if they receive an offer of a job elsewhere. This is called a ‘kiss and tell’ clause.
This obligation used to be quite rare and, whilst they are still much less common than
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restrictive covenants and confidentiality obligations, we are increasingly seeing it crop up. In
a relatively recent case the court held that a clause imposing this duty was enforceable.
Implied duties
In addition to the employment contract, you may be surprised to learn that employees also
owe duties beyond those written in the contract; these are “Implied Duties”.
Broadly speaking, employees are required to be loyal. An employer is entitled to have trust
and confidence in those whom they employ.
In practical terms, this means that an employee must not compete with their employer. This is
quite a wide-ranging duty and requires that an employee must not:
(a)
(b)
Work in competition with the employer during working hours, or in their spare
time; and
Solicit the employer’s clients for their own purposes, or for the purposes of a
rival.
Furthermore, whilst still employed an employee must:
(a)
(b)
(c)
Not entice their colleagues to leave;
Not disrupt their employer’s business; and
Disclose something that they are aware is likely to cause serious damage to
their employer’s business.
Fiduciary duties
Over and above the implied duties already set out, some employees will also owe to their
employers additional restrictive obligations – these are known as fiduciary duties.
Fiduciary duties can arise where there is a legal relationship of trust and confidence between
the employee and the employer. Those that are generally subject to these duties are senior in
status and normally hold the title of a director or senior manager. This is because as they are
deemed to exercise a level of control over the running of the business and also have access to
a significant amount (if not all) of the business’ confidential information.
Fiduciary duties include the following:
(a)
(b)
(c)
(d)
(e)
Not to make a secret profit;
To act solely in the employer’s interests, disregarding even their own;
To disclose circumstances where their own personal interests conflict with
those of the employer;
To disclose their own misconduct or wrongdoing and that of colleagues; and
To report steps taken by competitors to poach a team.
These are important to bear in mind if and when you are thinking about moving jobs. By way
of example, in the recent case of Kynixa and Hynes, several employees were found to have
breached their fiduciary duties. They had failed to inform their employer that they had been
approached by a competitor and that a damaging team move was in prospect. The three
employees in question ended up being ordered to pay their former employer’s legal bill,
which was estimated to exceed £1m.
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Risks to the Poacher
Having set the scene as to the duties that an outgoing employee owes to their former
employer, we can now discuss the risks of those duties and obligations being breached by the
employees and/or Poacher in a team move scenario.
As we have already pointed out, recruiting a team of employees from a competitor is not, in
itself, unlawful. But, it can be if it is not approached properly. Recruiting a team comes with
higher risks than recruiting individuals, not least because it is accompanied by the spectre of
costly, and potentially high profile litigation.
For the Poacher the four main pitfalls to avoid are:
(a)
Misusing confidential information;
(b)
Encouraging unlawful conduct;
(c)
Becoming involved in an unlawful conspiracy; and
(d)
Evidence issues.
Confidential information
As you have already heard, employees are not allowed to misuse confidential information:
filling up a memory stick with client details on your last day is hardly going to go down well.
However, this is exactly the sort of thing that comes up before the courts.
Similarly, acquiring employers are not allowed to misuse a competitor’s confidential
information, whether that information has come from their own employees, or from potential
recruits. This is an on-going obligation. Once the team members have moved across, the
acquiring employer should ensure that it, and the new team, does not use any confidential
information from the former employer’s firm. For example, do not upload it onto a computer
system from a USB stick.
Encouraging unlawful conduct and the breaching of obligations
Acquiring employers should also be careful to avoid encouraging unlawful conduct. In one
case, the defendants, after leaving their former employer, contacted their old clients whilst
claiming to still be acting for their former employer.
Acquiring employers should not induce any potential recruit to breach their own contractual
duties to their current employer. For example, an acquiring employer should not encourage
them either to recruit their colleagues, or to solicit clients for their purposes.
Evidence
By the time we have been instructed in a team move scenario, (either for the Poacher or for
the Gamekeeper), there have often already been allegations that a number of obligations have
been breached. Employees can be keen to protest that they have not done anything wrong, or
at least, nothing that is particularly bad. Yet, often something soon emerges - photocopying,
emails, text messages and social media posts which can be very damaging.
This evidence, if it exists, will be found by the former employer, usually, as a result of a
investigation exercise they have carried out upon being suspicious of the team move. The
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existence of this evidence can raise serious questions (if not destroy) the credibility of the
outgoing employee (and sometimes the acquiring employer).
[Case study - Interactive Scenario]
Evidence and Confidentiality (Lynne Kellett)
The success of a team move often comes down to the extent and quality of the evidence
available to each party. For an existing employer wishing to protect their position it is vital to
gather enough evidence to show that there has been a breach of duty, and more importantly,
that the breach has caused a claimable loss. For the acquiring employer however, it is a
matter of making sure you have the right sort of evidence in place to show you acted
appropriately throughout and that, as far as is commercially realistic, nothing damaging
‘crops up’.
Gathering and reviewing evidence can often be a long and tedious task but in most cases,
providing you have the right protections in place (such as IT systems or data provisions under
contract), there should be limited difficulty in actually obtaining the evidence.
What happens when you haven’t got the right protections in place or where intelligent parties
attempt to hide the evidence?
We will now have a look at some case law that illustrates how much information and
evidence, providing it is commercially proportionate, it is possible to gather.
Fairstar Heavy Transport NV (Fairstar) v. Adkins and Anor – [2013] EWCA Civ 886
Fairstar is a Dutch cargo company which, in July 2012, was taken over in a hostile bid by
another Dutch company, Dockwise. At the time, Mr Philip Adkins was the CEO of Fairstar,
but his contract was between Fairstar and Cadenza Ltd, Mr Adkin’s service company. As a
result of the takeover Cadenza Ltd and therefore Mr Adkins’ contract was terminated.
During Mr Adkins’ employment, Fairstar operated an unusual IT set up whereby emails sent
to Mr. Adkins were automatically forwarded to his Cadenza email account and immediately
deleted from the Fairstar server. Any email responses Mr Adkins sent came from his Cadenza
account and did not go via the Fairstar server.
Fairstar subsequently got into a dispute with a Chinese shipyard and became the subject of an
investigation by the Norwegian stock exchange authorities. Fairstar contended that in order to
respond to the various allegations made against them, they would need access to a number of
emails dating from when Mr. Adkins was CEO. Due to the IT setup however, Fairstar did not
have access to those emails.
Mr Adkins refused to provide copies of the emails, resulting in Fairstar making an application
to the Court for an Order allowing them to inspect the relevant emails.
Due to an exclusive (Dutch) jurisdiction clause in Mr Adkins’ contract of employment,
Fairstar’s application had to be made on the basis that they had a proprietary interest in the
content of the emails which entitled them to inspection.
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In the High Court, Edwards-Stuart J rejected the application, stating that there was no
proprietary interest in the content of an email which could be workable in practice. The Judge
confirmed that the laws of confidentiality and copyright were sufficient to protect such
content.
Fairstar appealed and the Court of Appeal overturned the High Court’s decision. Mummery
LJ held however that there was no need to delve into the complicated question on whether or
not there was a proprietary interest in the content of an email but rather that there was a
relationship of principal and agent between Fairstar and Mr Adkins. The Principal was
entitled to production of documentation (which included emails) held by the Agent relating to
the affairs of the Principal. The form of recording or storage of the information was
irrelevant.
Comment
Whilst the Court of Appeal was very clear that discussion on the proprietary content was not
necessary in this case, we cannot help but feel that the Judge missed a vital opportunity to do
so. The Court did make some interesting comments on the problem which suggests that,
should the subject come to be heard before the Court again, the Court will likely find that no
interest exists. Therefore, where there is a relationship of employer / employee, rather than of
principal / agent it remains unclear whether the employer would have been able to get access
to the emails. On current jurisprudence, it would seem unlikely that they could.
Points to take from this case:
1. Don’t have any strange IT set up! The whole litigation in this case could probably
have been avoided if Fairstar used a standard server and email system.
2. Make sure that your standard contract of employment states that the content of a work
email belongs to the Employer. Also, consideration should be given to the extent of
confidentiality and intellectual property rights.
3. Whilst there remains a question over the right to get access to the content of an email,
it might be worth pursuing an order for review (providing, of course, the information
you expect to obtain is sufficiently vital to the formation of a claim).
Warm Zones v Thurley and Anor – [2014] EWCH 988 (QB) Feb 2014
Warm Zones is a not for profit organisation whose objective is to deliver energy efficient
measures and advice to domestic low-income households, which is a surprisingly competitive
market. Warm Zones had gathered and collated extensive client information on households
which was held in a company database.
Sophie Thurley and Alex Buckley were employees of Warm Zones. Both Thurley and
Buckley had employment contracts which contained a confidentiality clause preventing the
employee from using or disclosing any confidential information about the business and
affairs of Warm Zones during and after employment.
In 2013, Thurley was dismissed for gross misconduct and Buckley later resigned. Both later
joined UK SS Renewal Energy Services (“RES”), a competitor of Warm Zones. Following
her dismissal, Thurley decided to bring an Employment Tribunal claim against Warm Zones
for unfair dismissal. During the course of that claim, Warm Zones discovered documents
suggesting that both Thurley and Buckley held confidential information belonging to Warm
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Zones and that during the course of their employment at Warm Zones either they had
disclosed, or were prepared to disclose, that information to RES.
Warm Zones applied for an interim injunction to prevent the unauthorised use and disclosure
of confidential information, and sought an order for inspection and imaging of Thurley and
Buckley’s computers.
The High Court was satisfied that there was significant evidence to suggest information was
at risk and that the information was capable of being confidential. The Court granted the
injunction and ordered that both computers be imaged by an expert, the results of which were
to be reviewed by an independent solicitor to avoid any issues of breach of privilege. 1
Points to take from this case are:
1. The need to include in a contract of employment an express confidentiality
term, which covers the use of confidential information post-employment. As
mentioned earlier in the lecture, whilst an employee will have an implied duty
covering confidential information during employment this implied duty has
limited effect after employment and should be covered by an express
provision.
2. The Court was not impressed by the integrity of Thurley and Buckley in this
matter and made comment on such throughout the judgment. This therefore
emphasises the need to come to court with ‘clean hands’, lest else be seen
unfavourably by the Judge.
3. Make sure the order you seek is focused and designed simply to secure the
return, protection and security of confidential information.
4. This case highlights, especially for an employee, that you can never know
what your fellow colleagues might do; but for Thurley’s Tribunal claim,
Buckley may have been home clear. It is important, therefore, that if you are
contemplating moving as part of a team that you do not rely on others to keep
you informed or to gather the right protective evidence. Each individual
employee could be named on a claim and therefore each employee should
ensure that they have adequately protected their own position.
Applause Store Productions Ltd v Raphael [2008] EWHC 1781 QB
Matthew Firsht was the owner and director of Applause Store Productions, a successful
business providing audiences for TV shows such as Celebrity Juice and The Graham Norton
Show. Mr Firsht had previously run a business of a similar nature with his friend Grant
Raphael, the Defendant, however the pair fell out.
Firsht became aware in 2007 that a fake Facebook profile had been set up claiming to be him.
The profile contained a mixture of true and defamatory evidence including sexual
preferences, relationship status, religious views and a link to a group called ‘Has Matthew
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It should be noted that the Court paid considerable attention to the guidelines set out in American Cyanamid
Co v. Ethicom Ltd [1975] AC 396 and Nottingham Building Society v. Eurodynamics Systems plc [1993] FSR
468 on obtaining an interlocutory injunction. These guidelines however are complicated and outside the scope
of this lecture.
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Firsht ever lied to you’. The group claimed that both Mr First and Applause Store avoided
paying debts with lies and implausible excuses.
Despite Facebook taking the profile and group down, Mr. Firsht wished to bring proceedings
against the person who set up the profile in the first place. In order to gather conclusive
evidence of who was behind the post and to support his suspicion that it was Mr. Raphael,
Firsht applied for a Norwich Pharmaceutical Order2 against Facebook Inc. requesting IP
evidence on who had created the page.
The Court granted the Order and Facebook were able to supply incredibly detailed and
precise information about both the profile and the group, including IP addresses linking the
posts to computers used in Raphael’s flat and office, when and how long pages were accessed
and search terms from Mr Raphael’s computer of Firhst and his known associates.
Mr. Firsht subsequently brought a claim for defamation. In a somewhat extraordinary defence
Mr. Raphael claimed that he did not create the page but that several strangers had
accompanied him and his girlfriend back from the pub when the initial page had been created.
One of them must have seen a list of names on his desk, logged into his computer carried out
the searches and created the page. Further alterations must have been made by colleagues at
work. The Judge made it clear that he did not accept Mr. Raphael’s defence (which he
described as being ‘built on lies’ and ‘utterly implausible’) and awarded £22,000 in damages
plus costs.
Points to take from this case:
1. The type and extent of evidence that can be obtained from the operator of a
website is alarming. In this instance, Facebook were able to provide sufficient
information to essentially devoid Mr. Raphael of any defence.
2. The costs in this claim were substantial and commercial consideration should
be given to the level of importance of the information/evidence sought. It is
unlikely that a Court would look too kindly on a party incurring a
disproportionate level of costs without due cause.
3. It should be borne in mind that this type of claim is not just limited to
Facebook and could be a useful tool against other website providers such as
LinkedIn or chat forums etc.
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A Norwich Pharmaceutical Order (“NPO”) can be applied for against anyone who is involved or mixed up in,
be it innocently or not, the wrong doings of someone else. They are generally obtained against someone who is
unlikely to be an actual party to the main proceedings but who can either provide the identity/address of a
person who has done a wrong or has access to relevant documentation. To be successful and obtain an NPO,
there must be:
1.
2.
3.
4.
An identifiable wrong (such as a breach of contract);
Intention by the Claimant to assert their legal rights;
The Order must be necessary to allow the Claimant to achieve justice (e.g. by confirming who the
wrongdoer is); and
There must be evidence that the individual has some relationship to the wrongdoer and is able to
provide the necessary information.
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Lockton Companies International v Persons Unknown and Google Inc [2009] EWCH 3423
Lockton Companies International is a large, privately held, insurance brokerage firm. In 2009
Lockton became aware of anonymous defamatory emails that were being sent from a Gmail
account and which contained confidential information. Lockton could only identify that the
emails appeared to come from an English company or employee, but it could not establish the
sender’s identity in sufficient detail in order to bring a claim.
Lockton applied for a Norwich Pharmaceutical Order against Google Inc. to determine the
identity of the sender so that it could start proceedings. The High Court granted the Order and
Google provided a variety of information, including subscriber details and the IP addresses
which were used to identify the sender of the anonymous emails.
As with the Applause Store case above, this goes to show the breadth of evidence available to
a party should it be willing to seek it.
Points to take from this case:
1. The sender of these emails obviously sought protection through the anonymity
of an email provider, however this case shows how dangerous it is to suppose
anonymity in a document once you have relinquished control of it. The trail
of the Poacher’s footprints goes far.
2. The use of personal or anonymous email accounts is not infallible. Realistic
consideration should be had however to the cost of obtaining such evidence
and thus the likeliness of an outgoing employer actually taking the necessary
steps to recover it. If emails are absolutely required, use of personal email for
an employee remains preferable to a work account.
3. Here Google were not supplying the content of the emails (which Lockton
already had) but details to determine the identity of the sender. As highlighted
in Fairstar above, this case does not solve the question of proprietary interest
in the content of the emails.
Cantor Fitzgerald v Boyer & Others (HCA44/2012)
This is a comparative only consideration of a recent case in Hong Kong and should not be
considered as law within the English Courts.
In 2012 Cantor Fitzgerald issued proceedings against three brokers and one chief economist
who had all resigned at the same time and moved to Mansion House Financial Holdings Ltd
(now Reorient Financial Markets Limited) on the same day.
Cantor Fizgerald brought a claim against both the outgoing employees and Mansion House
for a variety of breaches; including breach of restrictive covenants, breach of a kiss and tell
clause, procuring other employees to resign and acting in concert.
In a surprisingly one-sided judgment, the Court ruled against Cantor Fitzgerald and held that
there had been no breach by either the employees or Mansion House. In reaching the
decision, the Court made the following remarks:
a. With regard to the ‘kiss and tell’ clause, the Court found that there is no
fiduciary duty to inform your employer of an approach by a competitor. The
duty to tell only arises by express contractual term. Whilst two of the
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employees actually had kiss and tell clauses, the Court held that they were
unenforceable in this matter. The clauses were drafted so as to be an approach
from a ‘competitor’, which the Court held was too wide. Additionally, the
Court held that as Mansion House was a start-up company it could not
possibly be a ‘competitor’ of Cantor Fitzgerald and so the Kiss and Tell clause
would not have applied in any event.
The Elborne Mitchell LLP team caution that attempting to avoid Kiss and Tell clauses by
hiding behind a start-up would be highly risky, as it is unlikely that an English court would be
as lenient as their Hong Kong compatriot.
b. Whilst the court accepted that restrictive covenants were in general capable of
providing protection, the Court found the clauses contained in the employees’
Cantor Fitzgerald employment contracts were unenforceable. The period of
time they sought to protect was deemed more than was necessary or
reasonable and they were held to be too ambiguous.
c. The Court rejected the argument that the employees had encouraged each
other to leave and/or that Mansion House was acting in concert. This was
despite the fact that they all used the same law firm and changes were made
globally across all contracts. It was found that the evidence supported the
premise that each had decided to leave of their own accord.
d. Finally the use of a recruitment agent was legitimate and was not just a smoke
screen as had been argued by Cantor Fitzgerald.
e. The court commented that even if Cantor Fitzgerald had succeeded, there was
some question of whether or not they would have been able to establish any
actionable loss.
This is a particularly strange judgement where the Hong Kong Court seemed unconcerned by
the plight of the Gamekeeper. We highly doubt that the English courts would ever feel
capable in going quite as far.
Comment
Whilst this case has no direct impact on UK courts, it is of interest to note that one of the
brokers involved was actually on secondment from Cantor Fitzgerald’s London office at the
time. The employee attempted to rely on a notice provision contained within Hong Kong law
that was contrary to his contractual provisions, which Cantor Fitzgerald objected to. Whilst
the employee’s contract provided for exclusive jurisdiction to English law, his secondment
letter commented that it was ‘save for any mandatory laws of Hong Kong’. The Court
therefore found that the employee was entitled to rely on the Hong Kong provision regardless
of his contractual provisions. A stark warning to be careful when drafting any secondment
letters!
Points to take from this case:
1. Gamekeepers should review their standard contracts of employment to ensure
that their restrictive covenants are no more than reasonably necessary and that
their kiss and tell clauses are tightly drafted.
2. Engaging a Head-Hunter remains advisable but does not provide a fool proof
protection from liability.
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Are your documents safe?
Finally, a modern day warning on the security and availability of documentation and
evidence. Many of you will be aware of the leaked photographs of purportedly nude female
celebrities… With technology progressing, it is becoming increasingly more difficult to
monitor your documents and to be sure of who has access to them. How many of us actually
know and understand the iCloud? This should be especially worrying for any acquiring
employer and employee; it is no longer safe to assume that your private documents are going
to remain so. Let’s face it, if it can happen to Hermoine Grainger, it can happen to anyone!
If you have any queries please contact Kate Payne, Kate Thompson or Lynne Kellett
Elborne Mitchell LLP
30 September 2014
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