With world economies in turmoil, businesses are looking for ways to improve their declining profitability. For many the standard step of trimming the workforce to minimum acceptable levels has been exhausted.
Now increasing numbers of employers are resorting to hiring whole teams of employees from their competitors as a means of shoring up their balance sheet.
In boom times the predator employer may have simply bought the competing business outright. Nowadays, with credit tight, it is increasingly common for the predator employer to seek to poach a profitable team in the hope of securing a book of business without the associated costs of the acquisition.
Increasingly, employers are asking employment lawyers what steps they can take to minimise the risk of a team being poached and/or that poaching resulting in the loss of a valuable book of business. In broad terms, the answer lies in the employer taking the following steps:
- Setting up employment contracts that anticipate a team move
- Avoiding customers/clients being serviced exclusively by the same small group of employees
- Being vigilant in looking for the tell-tale signs of a team move
- Responding with a coherent strategy to a threatened team move.
- Structuring employment contracts
Many employers simply churn out standard employment contracts, paying scant attention to how an employee will fit in to the organisation. Where employees operate in teams servicing a discrete client base it is vital that their employment contracts are tailored to reflect the team dynamic.
It is generally best practice to ensure that all team members are required to give the same period of notice to terminate their contracts. This is to prevent more junior members of the team being able to leave and compete legitimately, thereby undermining the employer’s case for holding more senior members to longer notice periods.
Exactly this situation arose in GFI Group Inc v Eaglestone [1994] IRLR 119. The team consisted of three employees: two juniors who were required to give four weeks’ notice and Eaglestone who was required to give 20 weeks’ notice. All three resigned simultaneously to join a competitor.
In an action to restrain Eaglestone from joining the competitor for his full notice period, an injunction was granted for 13 weeks only, since the junior team members were already legitimately competing with their former employer.
Similarly, all the contracts should give the employer the option, once notice has been given, to restrict the employees to ‘garden leave’ or make a payment in lieu of notice.
Finally, the post-termination restrictive covenants should be identical or there should be a cogent rationale for any differences which may be driven by matters such as the status of the employee, or the particular section of the client base with which that employee deals.
Pairing employees and clients
The most common reason for clients to follow a departing team is because the team members are the only contacts the client has with the employer’s business – to the client the team members are the business.
So wherever practical the employer should ensure that clients deal with a variety of employees, ideally including some outside the core team. In this way, provided the employer is able to retain at least some members of the team he has, relatively easily, enhanced his chances of retaining the client.
Responding to a team move
The discovery that a team may be moving to a key competitor can throw the employer into a panic. Shaken by the possibility of losing a significant volume of business, the employer often reacts in an irrational manner, worsening rather than improving his position.
Formulating a coherent strategy based on a sound understanding of the facts is the key to success. The main steps the employer must take are:
- Find out which team members are involved, including those who may be waiting in the wings
- Review the employment contracts of the known and suspected team members to ascertain what protection they afford, either by way of garden leave or enforceable restrictive covenants
- Scrutinise the interaction between clients and team members and identify which clients are most at risk
- Consider whether the team can, and should commercially, be retained as a unit or split, retaining sufficient numbers to provide services to the key clients
- Assess the evidence of actual/anticipated wrongdoing by the team – there may be sufficient evidence, and it may be commercially desirable, to discipline/dismiss particular team members and/or obtain an injunction to stymie their plans.
Set achievable goals
Armed with this information the employer can identify achievable goals and devise a coherent strategy to achieve those goals. The employer must avoid repudiating the contracts of employment – the effect of which, when accepted, would be to discharge the team members from all future obligation – as in the case of General Billposting Co Limited v Atkinson [1908] 1 Ch 537 HL).
Finally, the employer should be aware that its response to a threatened team move will be watched closely by other employees who may also be contemplating a move. A well planned and executed response to one team move can be a powerful deterrent to any similar activity in the future.
Kate Brearley, partner and head of employment at Stephenson Harwood
Team moves – some tell-tale signs
Among the more common indicators of a team move are:
- Offsite meetings of the team – often billed as a social event
- Unusual absence patterns or travel plans
- Creation of e-mail groups
- Text messaging among team members in the office
- Unusual alliances among team members
- Apparently unconnected telephone calls to team members – often this will be the headhunter co-ordinating the move
- Sudden interest in employment terms, including hits on or printing of electronic handbooks
- Furtive behaviour among team members – intense conversations which suddenly stop when a non-member comes within earshot
- Voluntary or manufactured resignations as statutory directors.
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