When
you attract a high-profile person from a competitor, it is often tempting to go
into celebration mode and be rather dismissive of the individual’s previous
employer. This is a mistake, since there are many legal issues employers should
consider in these circumstances, in order to avoid costly, time-consuming and
potentially embarrassing legal issues.
Key
points
A
recruiting employer should always, as a matter of good practice, ask to see and
carefully read the person’s contract with their employer. First, look at the
stated notice period. Second, look for a garden leave clause – a clause
allowing the employer, after notice has been given, to require the employee to
stay at home on full pay and benefits for a certain period. If no such clause
exists, garden leave will not usually be an option for the employer. Third,
look carefully at any post-termination restrictions. Well drafted restrictions
on the solicitation of clients and colleagues and in relation to
non-competition generally could prove to be, at best, a litigation risk and at
worst very costly for a new employer recruiting from a competitor. Conversely,
an early view concluding that purported post-termination restrictions are
unenforceable due to their breadth is useful to have. Fourth, look for any
other onerous provisions. An increasingly common provision in contracts for
senior staff is an obligation to disclose to the current employer any job
offers made by third parties. Although it is not entirely clear whether this is
legally enforceable, it is as well to know what allegations might be thrown at
you when the news of the person’s defection becomes public.
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You
should also be careful to avoid any question that you have encouraged or
allowed the person to be in breach of their contract. The most common example
of this is when the person signals that they will not give full notice. It can
also occur where there has been solicitation between two or more people leaving
one employer for another, which would be in breach of the implied term of
fidelity. In both of these cases the new employer can be liable, indirectly,
for these breaches by way of a civil action called "inducement to breach
contract".
A
senior person is likely to ask for an unconditional offer of employment before
resigning from the current employer. With this request is often another – an
indemnity from you in relation to any legal costs and liabilities which the
person may suffer as a result of any legal claims brought by their old
employer. Negotiations over such indemnities can be tricky since you will not
wish to lose goodwill with the person but at the same time you will not wish to
give them carte blanche to act in any way they choose, since this could cause
you substantial liabilities.
