Team Moves: Three Ways To Protect Your Business

Summary and implications

When key employees leave to join a competitor, employers often risk losing other team members to the new employer too. Following a recent spate of cases, we summarise here three ways for employers to protect against such team moves:

Use garden leave clauses, because they permit an employer to keep a departing employee out of the business and prevent employees from competing with the company or soliciting its employees, or assisting others to do so. Ensure key employees are subject to clear, consistent restrictive covenants that have been tailored to their role and the business that they work in. Re-enforce restrictive covenants in any settlement agreement by making part of the settlement, particularly rights to unvested shares, conditional on compliance with restrictive covenants. We consider each of these in turn below.

1. Garden leave prevents poaching

   When a key employee resigns, consider putting that person on garden leave to protect your business against unfair competition.

   During garden leave, the employee will still owe you certain duties, such as the duty of fidelity (or loyalty). Because he remains an employee, he must not act against your best interests. So, limited preparatory steps to compete may be permissible, but he must not poach your employees.

   Importantly, with a carefully drafted garden leave clause, the departing employee may be required to report to you any "threat to the business or staff". In other words, he might be required to tell you if he assists a competitor in recruiting your staff during his garden leave.

   Signing a non-disclosure agreement with a new employer does not get the departing employee off the hook. (If you are the new employer, you cannot expect unconditional secrecy, because the individual will be torn between competing loyalties.)

   In summary, use garden leave clauses where possible and make employees aware of their obligations during that time.

2. Lock up key employees

   If you are concerned about team moves in any business area, make sure that senior employees are subject to appropriate restrictive covenants, with more junior people only subject to restrictions which are properly tailored to their levels.

   The court recently refused to enforce restrictive covenants preventing junior employees from soliciting staff, because the more senior employees in the...