Team Moves and Consideration of the Lessons to be Learnt for Employers Following the Recent Case of Tullett Prebon Plc and Others v BGC Brokers LP and Others
In the current economic climate employers should be conscious of finding themselves on the 'wrong end' of a team move. Acquiring a team of experienced employees can be an inviting prospect especially in competitive industries. After all, a team comes with an existing dynamic, it can rapidly create new (or improve existing) capabilities, and perhaps as importantly it can provide a real market advantage when acquired from a close competitor.
In light of the recent case of Tullett Prebon plc and others v BGC Brokers LP and others, this article examines what steps can be taken by an employer that finds itself on the wrong end of a team move.
Summary
Tullett Prebon plc (Tullett) and BGC Brokers LP (BGC) are rival companies in the business of inter-dealer broking. Their businesses involve the employment of large numbers of brokers who act as intermediaries between traders in financial products. The brokers are the companies key assets and their employment is characterised by high remuneration and long term contracts.
Tullett brought proceedings against BGC for conspiracy and inducing a breach of contract after BGC attempted to recruit a number of Tullett brokers. The brokers in question signed "forward contracts" with BGC and subsequently resigned from Tullett before the end of their contracts, citing constructive dismissal. Tullett also brought proceedings against the defecting brokers themselves. BGC counterclaimed against Tullett for inducing a breach of contract with respect to three brokers (the Tullett 3) who, having signed forward contracts with BGC, subsequently decided to stay at Tullett.
The Court found in favour of Tullett finding that the defecting brokers had not been constructively dismissed and were not entitled to resign before the end of their contracts. BGC had conspired to harm Tullett by unlawful means and had induced the brokers to breach their contracts. With regard to the Tullett 3, the Court found that they had not breached their forward contracts with BGC, as in light of BGC's conduct they were entitled to repudiate those contracts. Accordingly, Tullett had not induced the Tullett 3 to breach their forward contracts with BGC.
Action Against the Employees: Use of Garden Leave, Restrictive Covenants and Injunctions
The case showed how garden leave and restrictive covenants can be enforced by injunction if necessary to protect an existing employer's business interests, in this case its trade connections. In the instant circumstances, enforcing garden leave and restrictive covenants for 12 months was found to be acceptable.
By the time the trial commenced in October 2009, Tullett had already successfully prevented the resigning brokers from working for BGC for seven months, having been granted an interim injunction against them in April 2009.
At the full hearing Tullett attempted to extend the injunction to enforce garden leave of up to 18 months for the majority of the defendant brokers (who remained under contract for this period) as well as restrictive covenants for two whose contracts came to an end sooner.
The Court held that whilst 18 months was too long, 12 months was appropriate. It noted that the brokers were not suffering any financial loss whilst on garden leave and that there was a public interest in employees who had entered into long term contracts for high remuneration being held to those contracts.
Garden leave and restrictive covenants can be used to great effect, making it clear to both employee and prospective new employer that if an employee leaves their current employment there will be a period when they are of little use to anyone else in the industry. Any provision must however protect a legitimate business interest and go no further than necessary to reasonably protect it. If a provision does go too far there is a risk that the Court will strike it out in its entirety.
Action Against an Approaching Employer: Inducing a Breach of Contract
The case also highlighted how an existing employer can use a claim for inducing a breach of contract against an employer that has poached its team. The Court held that BGC had induced the brokers to breach their contracts with BGC, finding that it had been "indifferent" as to whether the brokers were in breach.
In a claim for inducement although the burden of proof rests with the party bringing the claim, it is not particularly onerous. There is no need to show that there was a positive intention for the employees to breach their contracts. It need only be shown that there was an indifference or that the party "turned a blind eye" to the likelihood of inducement. The approaching employer must demonstrate that they acted in an honest belief that there actions were not unlawful. One of the best ways of doing so is to show that they took legal advice. However it is of note that whilst BGC argued that they took advice as to whether Tullett had constructively dismissed the brokers and that this showed that they were "acting responsibly" in considering their actions, they did not waive legal privilege in this advice, choosing not to disclose the advice and therefore leaving the Court unable to deduce anything from it.
Action Against an Approaching Employer: Conspiracy
The case also provided some interesting guidance on the merits of bringing a claim for conspiracy against both departing employees and their prospective new employer.
Given that team moves invariably require coordinated planning, they almost lend themselves to a claim for conspiracy. Tullett claimed that BGC, along with Tullett's former chief operating officer, Tony Verrier, who had been instrumental in the plan, and the resigning brokers, had conspired to injure Tullett by unlawful means. The Court accepted that BGC and Mr Verrier had conspired to injure Tullett. The conspiracy claims against the departing brokers were rejected on the basis that they had simply acted in a way that suited their own ends.
What Else Can Be Done?
It can be tempting for an existing employer to take steps to encourage departing employees to change their mind and stay. Whilst this may happen regularly, employers need to be aware of the consequences of encouraging employees to stay, namely that they may be inducing the employee to breach a new employment contract (even though the new employment may not yet have started). Great care therefore needs to be taken once an employee has said that they have accepted a job elsewhere.
This case showed why care must be taken, as BGC made a counterclaim against Tullett for inducing the Tullett 3 to breach their forward contracts. However the case also showed that if the conduct of the approaching employer (in this case BGC) does induce the employee's breach of contract or in some other way unlawfully 'oversteps the mark' the employee may be entitled to walk away from any new contract arguing repudiatory breach. In these circumstances, even if the old employer has itself induced this decision, a claim against it would be unsuccessful as it is only inducing the employee to do something that they are already entitled to do.
BGC's counterclaim against Tullett failed on this basis. The Court said "a person can have no trust or confidence in an employer who has recruited him in such a manner, and should not be obliged to serve him. The Tullett 3 were entitled to treat their obligation to join BGC when free to do so, as ended".
Comment by Neil Adams
Partner, Employment Group (London)
This case provides a stark illustration of how an employer can seek legal redress in the event that a competitor uses unlawful means to recruit a team of its employees. The courts are prepared to uphold long term employment contracts and censure both employers and employees that breach them. The trial in this matter was limited to issues of liability only, with damages to be assessed at a further hearing if they cannot be resolved by agreement. The extent of the loss caused by BGC to Tullett and the damages payable remain to be seen.
Contacts
The information in this newsletter is for general guidance only and is not intended to be a substitute for specific legal advice. If you would like any further information please contact:
Neil Adams
Partner, Employment Group (London)
t: +44 (0) 20 7556 4572
e: NAdams@eapdlaw.com
Jonny
McDonald
Trainee Solicitor (London)
t: +44 (0) 20 7583 4055
e: JMcDonald@eapdlaw.com
