Employers should review senior employees’ contracts to ensure they contain appropriate restrictions on joining competitors, poaching staff, soliciting clients or using or disclosing their employer’s confidential information, following a High Court ruling.
A very senior manager left his employer with a team of 17 co-workers, and joined a competitor. His contract of employment with the old employer contained no covenants against working for a competitor or soliciting fellow employees.
His old employer argued that he owed it fiduciary duties as though he was a director – even though he wasn’t – because he was so senior. It claimed he breached those duties by failing to tell his employer about the threat of defection to the competitor and by taking active steps to help the competitor recruit the other employees.
The court agreed the manager’s seniority meant he owed his old employer the same fiduciary duties as if he was a director, and he had breached them by not telling his old employer of the threat of defection. It also ruled that his latest job description made it clear he should not help or encourage staff to move to jobs with a competitor.
However, these arguments would not have been necessary had the employer included appropriate comprehensive and enforceable covenants in each employee’s contract. This means covenants appropriate to the business, the market and the individual’s role and responsibilities, preventing them from working for competitors within geographical and time limits, or damaging the employer’s business if they left.
Employers should ensure they include comprehensive but appropriate and enforceable covenants in employees’ contracts. If they don’t, they risk having to rely on arguments that depend on an employee’s seniority if he or she joins a competitor, poaches staff or clients or misuses confidential information.
Case ref: Thomson Ecology Ltd and another v APEM Ltd and others EWHC 2875
Jonathan Waters is the founder of Helix Law. Before qualifying as a Solicitor he worked in industry and in investment banking for over a decade. He was also the Partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. Jonathan has wide experience of helping and advising businesses to avoid or to deal with commercial disputes and in particular construction disputes.
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