Articles
What is the Law when a Team Moves to a Competitor?
A recent case has highlighted the difficulty for employers seeking redress against those who desert their employment for a direct competitor taking a team of employees with them. Usually, restrictive covenants can be relied on in a situation like this - but what if there are no covenants, or the covenants are unenforceable or there has been no loss?
This was the situation in Lonmar Global Risks Limited v West & Others, where the High Court considered a claim for breach of contract and fiduciary duty against a team of employees formerly employed by Global Risks and for inducement of breach of contract and conspiracy against Tyser, who are a direct competitor of Global Risks and the new employer of the Global Risks Team.
It was alleged that the former employees of Global Risks had solicited clients and other employees from Global Risks whilst still employed. This type of scenario is not at all unusual especially in the banking and finance sector. Global Risks decided to take out a claim for breach of contract and fiduciary duty against their ex-employees and a claim for inducement of breach of contract against their new employer who had head hunted the team. They alleged that the Manager that took the team with him had breached his fiduciary duty to his employer. They also alleged that each team member was under a contractual duty to notify Global Risks of the wrong doing of the Team Manager and of the other employees, as well as of their own wrong-doing.
The claims failed. This was partly due to the facts and circumstances unique to the case (lawyers call this a "fact sensitive" decision). The conspiracy claim also failed due to the particular circumstances of the claim - in particular because a claim of conspiracy requires proof of loss and there was no such proof. However, the decision is still illustrative of a number of important factors which employers have to consider before making a claim of this nature.
Firstly, it is very difficult to show that an employee has a contractual obligation to inform his employer of any alleged wrong doing or to inform his employer of an impending team departure. In the absence of any clear contractual provision, the Court was also reluctant to imply that there was a contractual obligation to do so.
Secondly, unless an employee is a fiduciary, such as a director or senior manager, there is no fiduciary duty implied by the law to report ones own misconduct or that of fellow employees. In other words, a fiduciary duty did not arise from the relationship of employer and employee except in the case of senior managers and directors.
The court emphasised that the distinguishing feature of a fiduciary duty is the requirement that a person pursues the interests of another (his employer) at the expense of his own. This is a very onerous standard and is a legal characteristic of, for instance, the relationship of a trustee to a beneficiary of the trust. But an employment relationship does not in itself require an employee to pursue his employers interests at the expense of his own. As such it is not a breach of fiduciary duty for an employee to inform a fellow employee of his plans to set up in competition with his employer and (without inciting him to breach his contract with his current employer) offer him a job in the future. However, a very senior employee or Director would be a fiduciary.
Of course, such obligations may be imposed in the contract of employment or regulated by restrictive covenants and they then should be easier to enforce subject to the Courts accepting that the covenants are reasonable in scope and provided also the ex-employer can show loss. Outside of this it is difficult to seek redress for team moves.
For more information on the above or for advice on any other employment issue please contact our employment department on 020 7354 3000 or e-mail employment@colmancoyle.com
Author Profile: David Malamatenios
Date: December 2010