Team moves - perspectives from both sides of the fence

Team moves (where a number of people working in the same business decide to leave together and set up in competition) are tricky beasts. The financial and reputational impact to the organisation which the team is leaving can be huge. For members of the escape committee, who are responsible for planning and co-ordinating the move, the path to freedom can be fraught with difficulty.  

Team moves run the risk of breaching all manner of express and implied contractual terms. All employees owe duties of fidelity to their employer as well as duties of confidentiality. Senior employees and partners may owe higher, fiduciary, duties and statutory directors are subject to the duties set out in the Companies Act 2006. At the very least, these various duties will include obligations not to encourage other employees to join a competing business, not to approach customers about the possibility of them transferring their custom in the future, and not to disclose or misuse confidential information. 

Partners, directors and senior employees are also obliged to disclose to the employer any evidence of misconduct (whether their own or that of other employees), to report the intention of others to compete and to disclose their knowledge of any activity which may damage the employer’s interests.

Most team moves involve at least some degree of co-ordinated planning. Often, a senior member of the team will act as a recruiting sergeant or will pass information to the new employer about which employees to target and how to persuade them to move. Confidential information about clients or customers is also likely to be disclosed to the new employer (perhaps as part of a business plan) or to a financial backer if the team are planning to go it alone.  

As a consequence, these third parties may be on the hook for any losses flowing from the team move. Although they will owe no contractual duties to the team’s current employer, they may be guilty of inducing breaches of contract, misusing confidential information or conspiring with team members to achieve their commercial objectives by unlawful means. Any of these “economic torts”, if proven, would enable the current employer to bring claims against them. 

The employer’s perspective

Looking at the issue from the employer’s point of view, what are the tell-tale signs that a team move might be about to happen?

• Employees emailing work documents to their private email addresses, particularly documents that would be useful to them in a competing business
• Employees expressing sudden interest in the terms of their employment contracts (especially post-termination covenants)
• Unusual absences and off-site meetings
• Unusual alliances and furtive behaviour
• Sudden resignations of statutory directorships

Many team moves come to light because someone in the team who has not been invited to join the new venture, or who was invited but sees the team’s departure as an opportunity for their own advancement, informs on their colleagues. Alternatively, customers who have been sounded out about the possibility of transferring their business to the new venture may report those approaches to the employer. Whatever the source of the information or the grounds for suspicion, employers have some difficult decisions to make. Do they interrogate their IT systems to search for further evidence? Do they question some or all of the suspected team members? Do they take steps to try and retain or split the team?

At the very least, they should do the following:

• Assess the potential impact on the business if all the suspected employees leave together
• Consider express and implied terms in relation to each suspected team member, particularly as regards reporting obligations, notice periods, garden leave and post-termination restrictive covenants
• Plan the steps that may be required to stabilise the business eg offering retention bonuses to employees who aren't leaving, promoting junior staff to fill vacant roles, recruiting additional staff, and shoring up customer relationships
• Alternatively, consider negotiating the sale of the affected part of the business to the departing employees or the poaching employer

The departing employees/new employer’s perspective

Given the high risk of detection, and the likelihood that contracts will be breached and wrongful acts committed, choreographing a successful team move is no mean feat.

Tips for the departing employees and/or poaching employer include:

• Keeping the number of team members to a minimum
• Engaging a head-hunter to make individual approaches to target employees (without using confidential information)
• Limiting the amount of information team members have about the overall plan
• Reminding team members of their contractual responsibilities, including express and implied obligations during employment and any post-termination restrictions
• Restricting written and electronic communications 
• Thinking carefully about the timing of resignations
• Having a defence and settlement strategy planned in the event of litigation eg offering to keep out of a particular market, refrain from working for particular clients or refrain from approaching other employees, for a specified period of time.

Splash the cash

Whether you're the jilted employer or the jittery escapees, obtaining legal advice at an early stage can make a big difference to the outcome.  

If you're the employer, your lawyers can help you develop a better understanding of the options open to you, for example taking action to enforce post-termination covenants or obtain delivery up of confidential information, or obtaining a “springboard” injunction to cancel out any unlawful head start. You could also explore the possibility of recovering damages for loss of profit, or getting your hands on the unlawful profits made by the competing business from assisting breaches of fiduciary duty or misusing confidential information.  

If you're the departing team, or the poaching employer or financial backer of the departing team, lawyers can help you analyse the legal risks inherent in the planned move and provide advice on how to mitigate those risks. And if the team represents a distinct part of the current employer’s business, or if there's only one client or customer, you can get specialist advice on the impact of TUPE. All in all, money well spent!

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