Call us now 01473 688100

Springboard injunction granted because of employees' unlawful conduct whilst still employed

Posted on 25th February 2012
Case law

This case looks at employer protections when an employee makes preparations to compete whilst still employed.

On this page

Meet the author

Simon Quantrill Simon
Quantrill
Managing Partner Telephone: 01473 688100

The High Court granted 12 months protection from the date of the resignations to reflect the fact that it would have taken at least 12 months for the defendants to achieve lawfully what they in fact achieved unlawfully

Introduction

Confidential information and customer/client connections are often protected by the inclusion of one or more restrictive covenants in an employee's contract of employment or service agreement. If properly drafted and enforced they provide employers with excellent protection against an ex-employee's post employment activities. For example an ex-employee can be prevented for a specific period of time from soliciting or dealing with an ex-employer's customers or clients.

Sometimes, however, relying on contractual restrictive covenants is not sufficient protection when one or more employees have engaged in unlawful conduct whilst employed and before resigning to go and work for a competing business. This was exactly the case which arose in QBE Management Services (UK) Ltd v Dymoke [2012] which the High Court has decided this month.

What could your business do?

Faced with the following facts what could your business do to protect its confidential information and customer connections?

Three of your senior employees discuss and then agree to set up a new competing business. They remain in your employment and they solicit other employees to help and plan the new business.

All three senior employees then work together to plan, finance and set up the competing business whilst all the time remain in employment with your business.

The three employees prepare draft business plans and secure substantial financial backing from a third party investment company. The final business plan includes confidential information, including financial figures, taken from your business. It would have taken three or four months to complete the business plan if the three employees had not stolen this confidential information from you.

In order to minimise the risk of a mass resignation looking suspicious, it was agreed that the employees would resign in stages. In total 13 of your employees are persuaded to resign and to go and work for the new competing company.

Your existing customers and clients are solicited by the three employees and their co-conspirators whilst still employed by your business and during their respective garden leave periods.

To try and cover their tracks and hide their unlawful conduct, the employees used pay as you go mobiles to communicate with each other and attempted to delete material from their computers.

If you take no action your business stands to lose a significant and high value chunk of business.

What remedies do you have?

Yes, you could enforce the restrictive covenants and restrain your ex-employees' use of confidential information by applying for an injunction. However, is there anything you could do to protect your business against the advantage your ex-employees have obtained by their wrongful and unlawful conduct which they engaged in whilst they were still employed?

The answer is yes. QBE Management Services (UK) Ltd was granted a "springboard injunction" for 12 months from the date of the employees' resignations to remedy the head start the employees had unlawfully gained. This case highlights the benefits of using springboard injunctions to provide full protection against the misconduct of one or more employees prior to resigning and going to work either for a new employer or, as in this case, for their own new competing business.

Had QBE relied solely on their contractual restrictive covenants the period of protection would have been for six months only, being the period of restriction contained in the restrictive covenants. The High Court granted 12 months protection from the date of the resignations to reflect the fact that it would have taken at least 12 months for the defendants to achieve lawfully what they in fact achieved unlawfully.

The High Court determined that 12 months was a fair and just period taking into account all the circumstances. These included the fact that the defendants had engaged in a great deal of covert activity and the three senior employees who together masterminded the unlawful conduct were all in breach of their fiduciary duties owed to QBE.

The High Court recognised that the defendants had achieved classic springboard advantages. These could not have been achieved but for their unlawful conduct during their employment. The advantages included using their seniority to influence subordinate employees and encourage them to resign from QBE. The defendants had been able to continually access and use confidential information in order to help them plan their competing business. The defendants had been able to contact some of QBE's existing clients and secure their support for their new business.

The High Court also held the new competing business to be liable on the basis that it knowingly induced numerous breaches of conduct by the individual defendants. It was aware of the restrictions in the individual defendants' employment contracts and it deliberately accepted the litigation risk that they were encouraging the other defendants to act in breach of contract.

QBE was also awarded damages of over £300,000 to cover pay rises and bonuses paid to retain staff, and cover recruitment expenses to fill posts and the cost of employing temporary staff.

The High Court decision stressed that it preferred the evidence of QBE's witnesses to that of the defendants' witnesses. The judge said the witness evidence from the defendants "for the most part, flew in the face of the contemporaneous documents" and whose "explanations were generally improbable, disingenuous or simply risible".

In practice

This is another case which is a good example of how employers can protect their confidential information and business connections. As always, time is of the essence with such claims. Having good contractual documentation was important but having good contemporaneous documentation also helped secure the springboard relief.

The credibility of the various witnesses was a key factor. So often, a case can be won or lost by the way a witness behaves in the witness box. We always advise witnesses to answer frankly, concisely and avoid "wriggling". It is always best to concede a point when it is obvious or appropriate to do so. Last week, for example, we received a decision in the employment tribunal which (thankfully) found in favour of our client. The judge preferred our client's witness evidence compared to that of the other side. The judge described the other side's HR Manager as having less of a grasp or understanding of the key issues in this case than one would have expected of an HR Manager in her position . . . "in relation to Mrs Y, clearly she is a woman with high expectations and a determination to succeed. She is a blunt woman in the way she speaks to her staff, regardless of who they are . . ." The tribunal found that the Managing Director "was evasive to say the least, and often unable to answer direct questions." The testimonies of the other witnesses were "generally evasive, unhelpful and displayed a surprising lack of recall of the events in question." There was also evidence of a "standardised response from these witnesses, which appeared contrived."

At Quantrills we specialise in helping clients to protect their confidential information and, when necessary, take enforcement action in the courts. In these difficult financial times taking such action may be essential to avoid losing substantial profits. For a no obligation discussion on any specific concern please contact Simon Quantrill on 01473 694400 or email him at simon.quantrill@quantrills.com.

Clear, concise and accurate information for employers and HR professionals

Visit the hrlegal archive

Find out how we can help you

Click here to contact us or phone us 01473 688100

Keep your legal costs down with

Professional telephone and email advice and guidance for solving your everyday employment law and HR issues

No waffle, well written employment law updates and HR news articles, including case reports, helping employers and people managers keep up to date with what's important

Related articles