Thomson v Apem (High Court)
“Can you stop 18 employees leaving for a competitor”
A recent High Court case (Thomson Ecology Limited & Others v Apem Limited, Hall & Others) serves as a useful reminder to employers about the importance of ensuring that you have appropriate restrictive covenants and confidentiality clauses in place for key staff. Including express clauses will be preferable to leaving things to chance by relying upon ‘implied’ duties.
One of the Defendants Mr Hall, was the most senior member of staff (Operations Manager, but not a statutory director) at a site owned by Thomson at Letchworth. In late 2012/early 2013, he and 17 colleagues moved from Thomson to start work for Apem, a competitor.
In total, 15 alleged breaches of contract were levelled against Hall by Thomson. It was claimed that he owed fiduciary duties to Thomson by virtue of the senior position he held there (even though it was not a statutory directorship) and that in common with all employees, he was bound by an implied duty to act in good faith towards his employer. Several of the allegations related to the arrangements that were made to enable Hall and his colleagues to move to Apem. Effectively, the allegation was that he had been spending more time preparing the ground for a mass defection than focusing on his existing job for Thomson.
Hall’s most recent contract of employment was issued to him in 2003. It contained a generic confidentiality/intellectual property clause, but no restrictive covenants at all. There was an updated job description issued upon his promotion to Operations Manager in 2011, but still no contract changes were made.
The claim by Thomson centred on two principal allegations:
1) that Hall should have (but failed to) report the threat to Thomson from a competitor firm;
2) that Hall actively took steps to assist a competitor (Apem) in helping its recruiting of a number of Thomson’s employees.
The Judge ruled that Hall was indeed subject to fiduciary duties by reason of his seniority at the site, and therefore that he was required to report the threat from a competitor to the business (i.e. the approaches to its employees), to his current employer. The Judge also found that Hall had sufficient clarity in his updated job description to demonstrate that he was required not to do anything to encourage or assist staff to move elsewhere. Summary judgment was awarded in Thomson’s favour in relation to the good faith claim, with the other claim going to a full trial (yet to be heard) to determine whether on the facts he had breached that duty.
In order to protect your confidential information and intellectual property, and to restrict the ability of employees to damage your business by competing against you after they leave, it is best to have express clauses covering each of these areas. That is especially apt where the employee in question is a senior level employee (in this case, the most senior at the site in question), and/or a long serving employee who is likely to have a great deal of knowledge about your business, your clients, and other commercially sensitive information. Had Hall not been the most senior employee at Letchworth but lower down the ladder, the fiduciary duty argument run by Thomson would have been much harder, but the issue could easily have been put beyond such argument by a clear statement in Hall’s contract that he was obliged to report to his employer any threats to the business or (more specifically) any offers of employment to him and/or his colleagues which might constitute such a threat.
Squire Sanders is currently running a series of Webinars focusing on restrictive covenants around the world. We will also shortly be launching a pocket guide to restrictive covenants in different countries. If you would like to receive a copy of this guide, please contact me.