The art of war: keeping and attracting talent in disrupted labour markets

Importance of keeping teams together

For any business to thrive it must protect its interests from competitors. The impact of losing a top performer and their team to a competitor can be extremely damaging. The effect is not normally limited to individual performers or teams but can also result in the loss of:

• clients;
• prospects;
• other staff; and
• valuable confidential information.

Take pre-emptive measures: be proactive

There are several steps that employers can take to mitigate the risk of their employees leaving to join a competitor. Many employers already offer incentive-based remuneration packages which aim to align their longer-term interests with those of their employees. While such long-term incentive plans, together with a clear communication strategy, can assist with retention, employers should actively consider additional measures, such as:

• Including bespoke post-termination restrictions in employees' contracts to prevent them from joining a competing business or soliciting former colleagues to join a competing business. Some employers also include covenants to prevent groups of ex-employees from working together for a competitor.
• Including other express terms which require employees to:
  • disclose any information which may adversely affect the employer's interests (eg, plans to compete or approaches from competitors);
  • provide any prospective employers with a copy of the employee's contract; and
  • disclose a potential new employer's identity once an offer has been received.
• Identifying which employees or teams are most likely to be tempted to remove confidential information or attempt to take customers or clients. For example, roles which have the most contact with clients and access to confidential information (eg, sales roles or roles in which the employee is involved in IP creation, such as IT or software developers) are likely to pose the greatest risk.
• Ensuring that the employer does not inadvertently breach employee's contract, as this will render the post-termination restrictions and contractual confidential obligations unenforceable. For example, employers should ensure that they have the contractual right to suspend or place employees on 'gardening leave' before doing so and should continue to provide employees with all contractual benefits, even if it is suspected that they may be contemplating a team move.
• Taking preventative steps to ensure that if employees leave, they cannot use any confidential information to assist a competitor's business. This means ensuring that any confidential information is subjected to appropriate security measures (eg, password protecting and limiting accessibility) and implementing reliable IT systems to track how and when data has been accessed. This enables the investigation of concerns to take place at an early stage when action can still be taken.

Take charge: act quickly and decisively

In a team move scenario where one or more employees who work in the same business decide to leave and set up in competition with their existing employer on their own account or join one of their existing competitors, time is of the essence and the existing employer must act quickly and decisively to protect its own business interests.

Once an employer has established that departing employees have acted in an unlawful manner (by breaching either express terms or implied terms of their contract), there are several protective steps that it can take to try and prevent or mitigate the damage. For example, an employer can:

• investigate potential unlawful conduct, including:
  • interviewing relevant employees and other employees who owe fiduciary duties (ie, to act in the company's best interests, to not make secret profits or to avoid any conflicts of interests) to the employer (who should provide truthful and accurate responses); and
  • conducting a forensic IT analysis (being careful not to breach any applicable privacy laws – this will include the Personal Information Protection Act when it comes into force);
• send letters before action to departing employees, the new employer and sometimes other employees who may be vulnerable to being poached;
• apply for interim injunctive relief to enforce express or implied contractual rights, consider a springboard injunction to prevent the team or the new employer from taking advantage of an unlawful springboard as a result of past unlawful conduct (typically a breach of confidentiality, although this has been expanded to cover unlawful acts such as breaches of good faith or fiduciary duties);
• apply for orders for delivery up of documents and other material belonging to the existing employer to prevent its misuse and to further investigate suspected wrongdoing;
• seek to negotiate a commercial settlement, typically involving the departing employees offering undertakings to the existing employer or the court, to desist from further unlawful activities; and
• continue with legal proceedings to obtain final remedies against team members and the new employer for final injunctive relief or financial remedies, including compensatory damages or an account of profits.

Plan carefully and take precautions

As is clear from the issues already raised in this article, prospective employers should take care when recruiting senior individuals and teams from competitors. As noted, the primary concerns are that:

• individuals may face enforcement action aimed at preventing them from working for a new employer for a period or seriously limiting their effectiveness in a new role; and
• new employers may face a claim that they have induced an employee to breach their contract.

Comment

While there are several potential risks which employers can face at the hands of former employees, these risks can be significantly mitigated provided that they are:

• carefully considered at the outset of an employment relationship; and
• properly addressed in the contracts which govern a relationship.

For further information on this topic please contact Michael Hanson or Jay Webster at Carey Olsen Bermuda by telephone (+1 441 542 4500) or email (michael.hanson@careyolsen.com or jay.webster@careyolsen.com). The Carey Olsen Bermuda website can be accessed at www.careyolsen.com.