3 September 2012

Court tightens the standard of loyalty and good faith expected from employees

Some employers are sceptical about inserting confidentiality, non-solicitation and post termination restrictions into an employment contract because they may be seen as amounting to a restriction on trade. While this may be true, carefully worded clauses which are reasonable can protect your 'trade secrets' and 'highly confidential data' from breach by senior employees or employees placed in a position of trust. This point was recently highlighted in QBE Management Services (UK) Ltd v Dymoke & Others.

Three senior managers ('the Defendants') resigned to join a competing business, and shortly afterwards 8 junior employees resigned to join them. All the employment contracts contained confidentiality, non-solicitation and post termination restrictions. QBE in the first instance successfully obtained an interim injunction enforcing garden leave obligations and post termination restrictive covenants against the Defendants together with orders of early disclosure.

The disclosure revealed that the Defendants had been instrumental in setting the competing business up, solicited QBE's clients & employees prior to their resignation, abused confidential information and concealed their activities from their employers.

Where a person has obtained a 'head start' as a result of unlawful acts, the court has power to grant an injunction which restrains the wrongdoer, so to deprive them of the fruits of their unlawful act. This is known as 'springboard relief'. QBE successfully obtained the relief of a 'springboard injunction' restraining the Defendants from launching their company pending a speedy trial.

The disclosure in this occasion was key as it revealed that the Defendants were aware that their venture could only work if they had qualified and suitable employees and further this would be crucial to gaining credibility and the right financial backers. They targeted key staff and attempted to disguise this through the use of head hunters.

The Defendants also used confidential information to contact the brokers to entice them to provide the new company with future work.

The judge regarded this as an overwhelming case and one where the springboard relief was clearly available for all breaches not just for the breach of confidence. The judge concluded that the breaches had allowed the Defendants to get up and running before the crucial renewal window for some 70% of the marine insurance business in February 2012. Therefore alongside damages he ordered a further springboard injunction to prevent the Defendants launching their company until April 2012 - being 12 months after the date of the resignation of the Defendants.

This is a useful judgement for employers as it tightens the standards of good faith and loyalty expected of an employee.

What should I do as an employer?

Solicitation of clients is just as serious a threat in the printing industry as it is in any other industry whether it arises because an employee has joined a competitor or they have decided to set up on their own.  It is important to remember that any such clauses, to stand a chance of enforceability, must be tailored to the needs of the company,  And they are more likely to be enforced if, as in this case, employees have clearly been in breach of trust from the start.