Legal opinion: Taking a proactive stance on competitor poaching

As the economy recovers, competition for skilled employees increases. In order to grow the business, many companies aim to recruit key personnel, or even a whole team, from a competitor.

This can have a detrimental impact on the competitor employer, especially if it leads to a loss of customers, so employers should be aware of the potential threat and consider essential counter-measures.

Retaining clients

An important way of retaining clients is to strengthen relationships with existing staff to ensure loyalty and reduce the chance of them leaving and taking clients with them. Employers should make the retention of important customers a priority through client-care measures, and consider promotions, bonuses or pay increases for those instrumental in retaining customers.

If an ex-employee is in breach of post-termination obligations such as restrictive covenants, the employer should consider seeking a restraining injunction to prevent him or her from soliciting clients. Although such a measure is costly, the employer can seek remedies such as damages or an account of profits in addition to a claim for the infringing employee to pay its legal costs. However, by that stage, the client’s business, and the prospect of any further business, will almost certainly have been lost.

Key points

  • Retaining clients can be achieved through ensuring staff loyalty and implementing client care measures.
  • Preventing the poaching of staff is best achieved, at least for a period of time, through well drafted restrictive covenants.
  • Garden leave clauses are essential to limit competitive damage and often provide a more convenient solution than having to rely on restrictive covenants.
  • Employers should be aware of the signs indicating a team move and should seek to be proactive in trying to either prevent the move, or limit the impact.

Preventing poaching

There is nothing to prevent competitors from poaching staff unless the employee is in breach of restrictive covenants.

Where there is an alleged breach, the threat of legal proceedings may prevent the employee from going to a competitor. However, this is unlikely if he or she has the financial backing of the new employer. In such a case, the employer may be able to obtain an injunction to prevent the ex-employee from working for a competitor for the duration of any non-compete covenant. Such proceedings must be taken without delay and can be coupled with claims for damages, an account of profit and legal costs.

Preventative measures are generally more cost-efficient than legal proceedings. It is essential that contracts of employment include garden leave and confidentiality clauses, as well as expertly drafted restrictive covenants.

Garden leave

Once the employee has handed in his or her notice, the employer will usually place him or her on “garden leave” to limit any competitive damage. A tightly drafted garden-leave clause is crucial as it enables an employer to prevent an employee from working for a rival for a period of time. This may save having to rely on a non-compete clause being scrutinised by the courts in costly litigation.

It is essential that employers ensure that such clauses are included within their employees’ contracts and that they clearly set out what can and can’t be done during the garden-leave period. If necessary, employers can still seek to rely on restrictive covenants, which will operate after the expiry of the garden-leave clause. Sometimes, employers will agree to reduce the period of non-competition set out in the restrictive covenant by the length of time spent on garden leave. This is likely to render the non-compete clause more enforceable in the eyes of the courts.

Team moves

A “team move” is where a number of employees move to work for a new employer and the whole move is coordinated. In such a scenario, the impact on the old employer can be very commercially significant and the new employer (subject to cost and legal risk) can gain an established and functioning business.

Employers should be aware of which teams are at risk and note tell-tale signs such as meetings offsite and holiday bookings at short notice. It is often, but not necessarily, the case that the most senior person in the team will leave first and others will announce their departure shortly afterwards. However, it is often difficult to establish whether or not the departures are part of a concerted plan.

There are numerous measures that can be taken when a team move is afoot. These include: communicating with existing employees; offering incentives to stay; and conducting forensic IT analysis – particularly emails and telephone records – to gain evidence for potential legal proceedings. In such circumstances, the employer must be careful not to breach data protection and other privacy laws. Employers should seek immediate legal advice when faced with such a scenario.

John Buchanan, employment law specialist, Rothera Dowson

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