Employer wins springboard injunction after ex-employees are found to have committed "numerous abuses and breaches" of their employment contracts
QBE Management Services Limited v Dymoke and others [2012] EWHC 80 (QB)
QBE Management Services (UK) Limited has obtained a springboard injunction from the High Court restraining the activities of several ex-employees. The claimant described how the defendants had set out to "rip the heart out" of its British Marine underwriting and claims handling business whilst still employed by it. The defendants planned to acquire the business and its employees by stealth and without payment. The court found that the defendants' activities went beyond merely preparing to compete and that they were in breach their employment contracts. A springboard injunction was granted until 28 April 2012 in order to stop them obtaining an unfair advantage from their unlawful acts.
The defendants took a two pronged approach to setting up in competition with the claimant whilst still in its employment. The first limb of their plan was to actively encourage other key staff members to leave with them and the second was to secure substantial capital investment. The Defendants' strategy involved soliciting colleagues and customers and using their employer's confidential information in order to obtain backing from the fourth defendant, Pro Insurance Solutions Limited. In taking these steps they were in breach of the duty of fidelity and, in the case of one defendant, fiduciary duties.
Pro Insurance Solutions Limited was also found liable for knowingly inducing these breaches of contract. Either it knew that what the employees were doing was unlawful or it wilfully turned a blind eye. There was evidence to suggest that it had been made aware of the litigation risk.
The court concluded that there was an "overwhelming" case for springboard relief. Damages were considered to be an inadequate remedy as it would have been difficult to quantify the loss to the claimant. Further, in the absence of the injunction, irremediable damage may have been inflicted on the British Marine business. The new venture might well have taken custom from British Marine and profited from the annual renewals due to take place in February 2012.
In his judgment, Mr Justice Haddon-Cave provides a useful overview of the case law on employee competition and, in particular, guidance on the nature of springboard relief and the circumstances in which it will be granted. In summary:
- The underlying principle of a springboard injunction is to stop an ex employee from getting a head start as a result of his unlawful acts.
- Those unlawful acts could be a breach of confidence but could also be breaches of other contractual or fiduciary duties.
- Springboard relief is not granted as a form of punishment or to drive the defendant out of business. Its aim is to return the parties to the position they would have been in but for the unlawful acts.
- It will not be granted where damages would be adequate and it must be sought whilst the wrongdoer is still benefiting from the unfair advantage.
- The burden is on the claimant to make out the competitive advantage that has been gained, which needs to be of some substance.
The length of a springboard injunction will depend on the time it would have taken the wrongdoer to lawfully obtain the competitive advantage. In this case, the injunction will run for 12 months from the date that the key players in the new venture resigned from their positions with the claimant. The judge took account of the far reaching extent of the covert activity and the fact that, whilst employed, the defendants would have had significant influence over junior colleagues.
The case provides a salutary lesson for employers acquiring a team from another employer. They need to consider whether the plan that they are supporting will involve any unlawful activity. If so, there is a risk of being sued for procuring or inducing others to breach their contracts of employment. Clearly it will not be enough to wilfully turn a blind eye to any wrong doing or adopt a stance of indifference.
As for employers who lose a team to a competitor, the case is a reminder of the availability of springboard relief if it can be shown that the ex-employees have breached their employment contracts.
Documentary evidence will be of great significance in any application for injunctive relief. In the QBE case it was key to the claimant's case; much of what the defendants said in evidence ran counter to the paperwork. It is vital to carry out a thorough evidence gathering exercise in order to uncover contemporaneous evidence. Employers should also be vigilant. The defendants in the QBE case opted for a "soft departure" strategy whereby their colleagues would resign and join the new venture over an extended period of time in order to avoid drawing attention to their activities.
Of course, ex-employees may also be subject to post termination restrictions which their former employer can ask the court to enforce (as the claimant sought to do in the QBE case). As always, it is important that key employees have well drafted contracts with clear confidentiality obligations and appropriate restrictive covenants to supplement their implied duties.
The recent case of Towry EJ Limited v Bennett [2012] EWHC 224 (QB) is a good illustration of this point. The claimant company argued that its ex-employees were in breach of their post termination restrictive covenants because they had solicited its customers. However, the court held that the ex-employees had not actively approached and persuaded the clients to move their business so they had not solicited them and were not in breach. It could not be inferred from the fact that the company had lost a lot of business in a short space of time that solicitation must have occurred. From the claimant's point of view, the ex employees' contracts should have prevented them from dealing with its customers as well as soliciting them.
As a general rule, the law does not prevent employees from leaving their employer and setting up in competition. What it does do is to seek to prevent them from benefitting from an advantage that has been unlawfully obtained. Where wrongdoing is discovered, employers can take action to protect their business. The result for the wrongdoers will potentially be significant. The defendants in the QBE case were ordered to pay £314,030 in damages. On 2 February the High Court confirmed the final form of the injunction and made an interim award of costs in the claimant's favour in the sum of £450,000.
This article has been written by Ben Conway, a solicitor in our Norwich Employment Team.
It provides only a general summary and is not intended to be comprehensive. Specific legal advice should be taken in any individual application. Law covered as at 27 February 2012. © Birketts LLP 2012.