April 16, 2024

How employers can and should respond when a team moves to another business

Posted in Employment, Tech Sector

In today's episode, we speak to Martin Pratt and Holly Freuchen, who are both solicitors in our London employment team about team moves and why they matter.

We start off by outlining exactly what a team move is, what business managers should do if they suspect one is happening and also we discuss some of the red flags and the common attributes of someone who might be looking to purge some clients and steal some company data to move to a new company.

So, to kick off with, can you explain what a team move is?

Holly Freuchen: So, in simple terms, a team move is where a group of employees so that’s two or more, leave a business to set up on their own or they leave to join a competitor and of course that brings with it issues relating to things like confidential information.

So, if there’s more than one person leaving, you’ve got lots of risks in relation to misuse of confidential information because they might use that together. But you’ve also got lots of skills and that could be perhaps a substantial part of a workforce leaving the business and taking away a lot of knowledge and skill sets.

Martin Pratt: Yeah, losing two employees is careless, but losing a group could be seen as quite a hostile act from a competitor. So, you do need to remember that this can be quite a hostile situation and very important.

So what sort of steps should be taken if someone suspects a team move like this might be occurring?

Martin: Well, the first thing you need to do is to assess what’s going on in general terms and how damaging it’s likely to be if a specific group of employees leaves, is it terminal for your business? Is it disappointing or is it something in between and once you know what you’re dealing with, then you can adjust your strategy and, you know, how you’re going to go in, how hard you’re going to go in.

After you’ve done that, the first thing you need to do is get a full investigation going as to what’s been happening. How long have they been planning this? What have they been doing the last few weeks? Can you check IT? Is there anything, you know, have they been plugging USB sticks in where they shouldn’t have been? See the emails that have been going backwards and forwards and once you’ve got an idea about what’s been going on, what’s happened to any confidential information and what level of damage you’re likely to suffer, the next thing you’re going to do is work out what your legal options are.

Generally speaking, at this stage, what can you do? How long is it going to take? How much is it going to cost? Fundamentally in these things, the big question is, is the cost risk analysis. What’s the likely damage and what is the likely legal spend and commercial spend in trying to put it right?

And are there any indicators or red flags that you've seen in cases that you've worked on for the kind of commonalities of the things that people do before they do a team move in this way?

Martin: There’s a few things, I mean, have any one of them being grouped into taking a particular interest in their terms and conditions of employment, asking for clarification from HR, that sort of thing; someone that you’ve worked with for a long time who’s never shown any interest whatsoever in their contract employment and goes over to HR to ask for a copy.

You might sort of see people going out for more lunches than they had previously been going out for and frankly, particularly in small offices, these things don’t stay quiet for very long and you may hear things on the grapevine.

Holly: And you might also be looking at somebody that’s perhaps been looking at client lists, client contact details. Have they been looking at other sorts of company confidential information? Is there any evidence that you or the IT team can find that shows they’ve been sharing it or sending it to themselves?

So a classic one could be, for example, a few days before he resigns, they send themselves their entire customer list, just things like that. So you might want to check perhaps their emails, or if they’ve got a work phone, maybe on WhatsApp or text, perhaps employees are messaging each other about this and this goes back to the team moves point that I made earlier. Is there kind of an element of coordination that you can see or even track by looking at their devices or what they’re doing on their computers?

Martin: Things like, you know, as I said before, are people suddenly disappearing for meetings together, going out to lunch together, coming in late together, going early together? Perhaps not even together, but nevertheless different behaviours exhibited by a group of people. Just be aware that just things out of the ordinary that people are doing that are differently, but they’re doing it together.

So how can a business go about protecting their confidential information before this kind of thing even happens?

Holly: So before, in addition to having confidentiality provisions in place, there are also things called restrictive covenants in contracts of employment. So, restrictive covenants are provisions which restrict an employee, or stop them from doing certain things for a set period of time after they leave their employment.

So, the most common one, or the one that’s probably most well-known, is a non-compete and that seeks to stop them from working for a competing business. But there’s also other restrictive covenants that are quite common, such as non-solicitation of clients, non-dealing with clients and that stops you from soliciting or dealing with the company clients.

Martin: Yeah. You’ve got other options, for example, if you’ve got a decent notice period in an employee’s contract you can put them on garden leave which means making them stay at home, but cutting their access off from the company systems, the employer’s systems and preventing them from contacting clients. It gives you a much better element of control them post-termination restrictions because they owe all the duties of an employee during that notice period, particularly to act in the best interests of the employer. So, it’s quite a tough thing, I admit, for an employee if they’re on four to six months’ notice, but maybe not so much if, if the notice period is only a month or so. So, there’s a number of techniques that you need to be mindful of when you’re creating your contract.

If you don’t have much contractual protection, such as notice periods or post termination restrictions you need to be able to consider other types of remedies and the main one of those is remedies to protect confidential information that’s been taken with a view to setting up a competitor’s business. Yeah, giving the competitor a head start. If you’re doing it from scratch, it would take you ages to be able to get all of the information regarding customers, clients contact details together and because of that unfairness, the court may very well grant what they call a springboard injunction to deprive the party employees the unfair head start that they have procured by taking confidential information with them. Back in the 80s, ever so slightly before my time, they used to be injunctions regarding filo faxes and rolodexes because they had business cards in them, and you can get similar kinds of things today. Take databases of clients, contact details that have been taken with employees who leave.

Can the new company get in trouble for poaching employees?

So not just the employees themselves maybe get in getting in a bit of bother, but the new companies that they found and moved to?

Martin: Yeah, this is an important issue. The answer is yes, it is possible. It’s a difficult area of law that isn’t that widely understood. But if you was a potential of employer of a team from another company, get involved in the process by which they’re leaving their old employer and they come to you, you’re getting on thin ice because the risk is you could be sued for inducing the employees breach of contract with the old employer, or potentially even conspiracy to damage the business of the old employer by unlawful means. So, it’s by that means that any move of this sort needs to be very carefully managed from the new employer’s point of view, and they need to take careful legal advice to make sure that any interaction with the employees that are coming over is carefully controlled. You can do that, but it has to be managed very carefully.

So: legal action. When's the right time to call in the lawyers?

Holly: So straight away we would always recommend contacting your lawyer as soon as possible and you want lawyers in there as quickly as possible to help you with determining that cost benefit analysis.

Martin: Yeah, but the point is that a significant part of the analysis that we talked about at the beginning is what can you do? How long is it going to take you? How is it going to be for you and your lawyers?  You pay your lawyers to give you the answer to those questions.

The other thing is, one of the significant things you’re going to have to do is, which is perhaps particularly in terms of somebody nicking your confidential information, is get a forensic IT analysis going. But that in itself has a number of legal problems. So you will have to work with your lawyers to make sure that the IT team you recruit to interrogate these systems of the departing employee and your departing and your systems is going to stay within the legal parameters in doing their work and what’s more that they can decent information when they have looked at those systems.

Often you get forensic investigators which are comprehensive, expensive and thorough, but they don’t actually tell you what you need to know and they may actually be because you need a court order to widen the scope of what you’re able to do.

Holly: And what Martin was touching on there is that it’s really important that any search is conducted lawfully, because that could jeopardise the potential claim if you breach their contract by potentially breaching any sort of Data Protection provision, and then that could mean that they could resign without notice and potentially be released from those restrictive covenants that we were speaking about earlier. So it’s really, really important that the investigation is carried out properly.

Martin: That’s a great point and the reference to potentially invalidating contractual terms by the way you behave as an employer in the immediate aftermath of this behaviour is really important.

If temperatures are running high, it’s very easy for an angry employer to be tempted to take some sort of abrupt action at short notice and really without thinking it through. But sometimes if they do that, they find that they’ve scuppered the chance of doing anything because they’ve accidentally breached the contract of the employee and so all of the work that they’ve put in with their lawyers to put in appropriate contractual provisions go straight out of the window. So it’s a really important and valuable thought that.

So on average, how long will legal action take to conclude?

Holly: So, if you’ve got to the point where you think legal action is the right way to go and you’re looking to protect your position, you might decide to apply for an interim injunction and that should usually take around one to two weeks and then after that, if an order for an interim injunction is made and you’re successful, then a speedy trial will usually be ordered and that can take anywhere from around four to five months. If it’s quick then it can of course be more, obviously there’s quite a limited time to prepare for a full legal case and that really does ramp up the pressure on both parties.

Martin: Yeah, and often the threat of an injunction is made, it’s very important for an employer that’s losing the team to think very carefully about what the implications of actually applying for an injunction are. If you’re successful with an early injunction application which will prevent the move, prevent your loss and limit the chances of any damages, it might sound weird, but certain employers think the best thing to do is keep the money in the pocket, not to go for an injunction, which is quite a legal and expensive option. See what happens and if loss is suffered, then run a claim for money instead, rather than getting an injunction.

So instead of immediately trying to stop the activity later on, see what happens and then bring a claim for the money that has been lost. Now, it wouldn’t be a really quick hearing, you know, like the injunctions that Holly was talking about and it could take anything up to 18 months or longer if the claim is defended. But if you’ve got a strong case, maybe that you’d be able to get a good position to negotiate a settlement very early on and recover compensation and probably some of your legal costs as well. It’s all strategy that needs to be thought through very carefully.

Holly: Which is of course another reason to get the lawyers in as quickly as you can.

What are the best ways to settle legal action swiftly in dispute resolution?

Holly: I think the first thing you need to do so you can put yourself in a position to be able to even think about a settlement, is you need to make your case as clear as possible, as quickly as possible. So you need to put forward your case to the other side quickly so that you can be in a good position to even consider settlement.

Martin: Yeah. I mean, frankly, if you think you can go in with bluff and bluster and very few facts and fewer legal principles, you’re probably wasting your time. You really need to show a strong hand legally and factually before you make the first move. In most people, lawyers are able to see through any bluff and bluster.

So all that you need is a good set of cards that you need to play carefully and if you do that, you’ll be in a strong negotiating position. From there, you can move to a settlement strategy, which is another part of what you need to be thinking about with your lawyers at an early stage. Sometimes that can just simply involve making an offer and which is accepted quite early on.

So it’s all a bit of an anti-climax and if it doesn’t work out, you can talk about other forms of alternative dispute resolution like mediation. The main one everybody knows about is mediation, frankly and there’s absolutely no reason not to try and get a mediator involved early on because everyone knows these are damaging and very costly and getting a successful mediation can say that everybody an awful lot of time, heartache and money can get them sorted out early, then everyone’s happy.

Martin and Holly, thank you very much for your time.

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