5 Jun 2014 02:38pm

The legal dangers of poaching staff

On Monday, it was revealed that poaching of senior members of staff is at an all time high. Francesca Lopez, employment solicitor from Kingsley Napley LLP highlights 10 key issues to bear in mind when recruiting

1. Establish what legal obligations and/or post-termination restrictive covenants apply to the employee in question. It sounds obvious but it is too often overlooked in the recruiting process. Ignorance of the terms of a prospective employee’s contract of employment and/or any post-termination restrictive covenants which may apply to them is a weak defence in court. Failing to establish obligations to former employers, or indifference as to the same, may be sufficient to amount to a breach of contract. Including a warranty in any prospective employee’s contract (in which they confirm they are not in breach of their contract with their former employer) may help, but reliance on any such warranty can be problematic if you also provide an indemnity.

2. Consider the implications of offering (or failing to offer) a prospective employee an indemnity to cover legal costs and financial losses incurred upon any move, and/or any upfront sign-on payments. A prospective employee may refuse to join without an indemnity because of the risk of incurring significant financial losses if they are pursued by their former employer for breach of their restrictive covenants.

Whilst an indemnity may comfort a prospective employee, you should note this may increase the likelihood of a court subsequently finding you colluded with the employee or induced them to breach their contract of employment. Departing employees, protected by a prospective employer’s indemnity, may not be as assiduous in complying with the terms and conditions of their contract as might otherwise have been the case. Arguably the indemnity itself can be evidence of an intention to breach - why else would it be required?

3. Appreciate your disclosure obligations in the event of litigation. Telephone and mobile phone records, texts, instant messenger chats, meeting notes, emails, board minutes, memoranda etc. will (unless legally privileged) be disclosable if relevant to any subsequent court proceedings.

4. Take careful advice if you are considering entering into any discussion with prospective employees as a group. It is usually inadvisable to discuss with senior staff the recruitment of more junior employees, particularly while they are both still employed by your competitor. Senior members of a team may owe fiduciary duties to their employer. If so, they will be required to act in their employer’s best interests and the solicitation of junior employees is likely to constitute a breach of contract. Even obtaining information from senior members of the team about their junior colleagues, so as to decide who to approach, may lead to allegations that you induced a breach of contract, that the senior employees acted in breach of contract, and that you all conspired together.

5. Consider the status of the employees you are seeking to recruit. All employees owe a duty of trust and confidence to their employer. This requires them to act in their employer’s best interests. Fiduciary obligations go further than this basic requirement. They require employees to put their employer’s interests above their own. An individual who owes fiduciary duties to their employer may be obliged to inform them of any approach or offer of alternative employment they, or any of their colleagues, receive.

These individuals may be considered critical to the business. Their restrictive covenants may therefore be enforceable for a longer period of time, or may be far reaching. For example, 12 month restrictions might be enforceable if an individual has a particularly close working relationship with the clients his/her employer is seeking to protect, or if s/he had signed a goodwill agreement. Take extra care, therefore, where a prospective employee has entered into a business, shareholder or similar agreement with their current employer since their post-termination obligations may be more likely to be enforceable.

6. Be aware of your conduct vis a vis your prospective new employees. If you, as a prospective employer, act unlawfully it may be possible for the new employees you have recruited to argue breach of the employment contract they signed with you. They may be able to argue that your unlawful conduct in poaching them is such that they have no trust or confidence in you. This might arise if, after they have signed contracts of employment with you, and given notice to their current employer, their current employer persuades them to stay. The courts have previously held that in such cases, the “cynical disregard for the law and for employees’ duties” which was demonstrated by prospective employers was such that the poached employees were not obliged to serve them.

7. How you treat prospective employees at the time of recruitment may affect your dealings with them in the event of their termination. If you demonstrate little or no respect for a prospective employee’s restrictive covenants, or the continuing obligations set out in their contract of employment with their former employer, if or when that individual comes to leave your employment, they could show you a similar disregard. The courts may not enforce your restrictive covenants if you have flouted those of the previous employer. After all, an injunction is an equitable remedy, and the courts will apply the principles of fairness and good faith.

8. Beware of encouraging employees to raise “artificial” constructive dismissal claims. The courts may look unfavourably upon contrived constructive dismissal arguments raised by an employee with a view to circumventing their notice period or post-termination obligations, particularly if s/he has already secured alternative employment prior to resigning and bringing a claim. The new employer may be accused of having induced a breach of contract as a result.

9. Consider whether it is appropriate to agree terms with the current employer. For example, you may agree to “buy” the business of, or share the revenue generated by, certain clients. In some situations, a former employer may seek to agree to share the revenue generated by certain clients with you, as a competitor, rather than lose the business of those clients in its entirety. Negotiating this type of arrangement may prove more economic for the former employer than engaging in a costly legal dispute to protect its business interests. Seek legal advice before approaching the current employer of desired staff.

10. Sometimes clients/customers exert leverage on an individual’s current employer to allow that particular individual to continue deal with them post-termination. The client is, after all, free to choose where it places its business. 

Francesca Lopez is an employment solicitor at Kingley Napley LLP


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