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The High Court has granted a springboard injunction to protect an employer after a former employee organised a mass defection of employees to join him in his new competing business. The case demonstrates the risks associated with large team moves and provides some comfort for employers who may face competitive activity from former employees.

What is a springboard injunction?

If an individual starts up in competition with his former employer, the former employer may seek an injunction, not only to enforce restrictive covenants in the individual’s contract, but also to limit the use of confidential information. A springboard injunction is often sought by employers to prevent a former employee and/or the new employer from capitalising on their wrongdoing and gaining a head-start when competing with the former employer.

“Team moves” often give rise to springboard injunctions. In brief, such moves often involve a number of employees acting in secret which, in turn, may involve a breach of the implied duty of fidelity which they owe to their existing employer and may amount to an unlawful conspiracy. If a competitor helps to persuade employees to leave in secret, this may also involve inducing breaches of contract.

Facts of the case

In UBS Wealth Management (UK) Limited and another v Vestra Wealth LLP and others, Mr Scott, one of the defendants, resigned from his senior position at UBS. It was agreed on his departure that he would only be bound by the restrictive covenants in his contract for a limited period. Mr Scott subsequently set up a new business, Vestra. He approached a significant number of UBS employees to offer them employment at Vestra. This led to the resignation of 52 UBS employees on the same day. This was followed by the resignation of a further 23 UBS employees, making a total of 75 defections from UBS to Vestra.

Mr Scott assured UBS that he had taken legal advice, had instructed all resigning employees of UBS to comply with their obligations to UBS, that he was unaware of any breaches of contract and had not induced any such breaches.

However, following an investigation, UBS issued proceedings against Mr Scott, Vestra and four former senior employees who had also defected to Vestra. UBS sought a springboard injunction, pending trial, to prevent Vestra and the other defendants from using material gained from their alleged breaches of contract to gain unfair advantage.

The defendants argued that Mr Scott acted alone and dealt separately with each of the defectors, with each one deciding to join him without any encouragement from any other UBS staff. As Mr Scott was no longer bound by restrictive covenants, it was argued that he was entitled to recruit former UBS colleagues and was also entitled to seek to attract clients, including UBS clients. UBS, however, contended that the four senior employees had also co-ordinated the defections from within UBS and persuaded staff to leave. In doing so, they had breached their employment contracts, had induced breaches of contract by other staff and there had been an unlawful conspiracy.

Decision

The High Court granted the springboard injunction, pending trial, stating that:

• the defendants should not solicit further defections of UBS staff or clients with whom they have had recent dealings.
   

• whilst nothing could be done to prevent clients who had left for Vestra before proceedings commenced from continuing to do business with Vestra, these clients should not be serviced by former staff of UBS in breach of their continuing restrictive covenants.

It noted that it was “inherently unlikely” that whole departments should leave UBS en masse and join Vestra without extensive discussion between staff beforehand. It was also “overwhelmingly likely” that the defections can only have happened with the active and knowing encouragement and assistance of many of the defectors. This was supported by transcripts of telephone calls routinely recorded by UBS.

The High Court also confirmed that springboard injunctions can be used not only to limit the misuse of confidential information but also to prevent “future or further serious economic loss” to a previous employer caused by former staff members taking an unfair advantage of any serious breaches of their contract of employment (or, if they are acting together with others, of any breach by any of those others).

Impact of the case

Whilst the case has since settled, it demonstrates the range of issues involved when team moves are orchestrated and the extent to which there may be a breach of duties of loyalty and fidelity when staff defect from one organisation to another. Employers often face the substantial hurdle of producing evidence of wrongdoing in such cases and there is no doubt that UBS’ telephone records were invaluable in this case. Further, the case confirms that springboard injunctions are not confined to cases of the misuse of confidential information and the confirmation that they can apply to breaches of contract by defecting employees is a welcome development for employers.

There may also be data protection and FSA regulatory issues associated with departures in financial services businesses where confidential information about customers is taken. Whatever the facts are found to be in the UBS case - and we make no comment on these - the FSA has made it clear (see ‘Data Security in Financial Services’ FSA 2008) that it expects high standards of data security in financial services business so as to prevent sensitive information about clients and customers leaving the organisation or being misused. In order to maintain data security, access to bulk customer data should be restricted and controls should be in place to restrict the removal of data outside the security of the office. Where customers have given consent to the holding of data by one organisation, that consent may not apply to the use of that data by another organisation, for example one that is set up in competition. Sanctions have been imposed by the FSA on businesses who have not maintained customer data securely.

Public service agreement on equality – plans for delivery

In 2007, the Government’s announced its key priorities for 2008-2011 in the form of Public Service Agreements (PSAs). This included an Equality PSA, which will be delivered by the Government Equalities Office (GEO). The GEO has now published its broad plans for delivery, which are broken down into five areas:

• narrowing the gender gap – the GEO plans to take a number of steps, including introducing legislation to promote greater transparency in pay; working with other bodies and unions to gather evidence on the effectiveness of pay audits and using the new expanded single public sector equality duty to make public bodies more transparent
   

• increasing disabled people’s choice and control – this will include reducing the employment gap between disabled and non-disabled people
   

• addressing inequalities in civic participation – this will involve improving the diversity of public appointments; ensuring effective third-sector representation in public life and improving the participation of disadvantaged groups
   

• tackling discrimination in employment – this will including introducing new legislation to ensure that a strengthened, streamlined legal framework is in place; extending the right to request flexible working to parents of children up to the age of 16 and engaging employers to improve their understanding of disability and attitudes towards disabled people 
   

• understanding and addressing unfair treatment – the GEO will lead a project which will identify best practice on measuring dignity and respect and unfair treatment and review different approaches to tackling unfair treatment

New review to examine how to boost employee performance

Business Secretary John Hutton has announced a review to examine new ways to boost the performance of employees and improve British business success.

The review will be led by David MacLeod, an expert on employee engagement, working with Nita Clarke, director of the Involvement and Participation Association (IPA).

The “Review of Employee Engagement and Investment”, which will make recommendations in the New Year, intends to:

• identify and understand in practice how businesses improve productivity by engaging with and investing in their employees
   

• examine the benefits of employee engagement and investment in terms of UK competitiveness and productivity and the effect on individuals’ career progression
   

• identify whether there are barriers to businesses adopting good practice (including market failure and regulatory barriers)
   

• make recommendations to address any market failure, eliminate barriers and encourage wider adoption of good practice

Revised guide on national minimum wage

The Department for Business Enterprise and Regulatory Reform (BERR) has published revised guidance on workers’ rights and employers’ obligations under national minimum wage legislation. The guide intends to help employers ensure that they comply with the legislation and to help workers establish whether they are receiving their entitlement.

Increase in industrial action

Organisations are increasingly being affected by turbulent employee relations, with the problem being concentrated in the public sector, according to research by the Chartered Institute of Personnel and Development.

The CIPD survey of more than 850 employers finds that a quarter of unionised organisations have been affected by strike action in the last 12 months and almost 1 in 3 unionised employers believe they may experience some strike action by some workers in the next year. Industrial unrest is to a large extent confined to the public sector, with 49% of public sector respondents reporting strike action in the past 12 months and 51% believing employees are likely to strike in the year ahead. In all, 12% of private services companies were affected by strike action last year and 28% of respondents in this sector believe strike action is possible in the coming 12 months.

Eight out of ten employers cite pay as the reason for recent strikes, while nearly 90% of organisations anticipating possible strike action in the next year believe pay will be the critical issue in any such disputes.