Protecting Your Key Staff From Poaching
Tanner De Witt Legal Update, September 2005
Mass resignations at ICAP
The recent decision of the High Court of Hong Kong in ICAP (Hong Kong) Ltd. vs BGC Securities (Hong Kong) LLC and othershighlighted the importance of having properly drafted post-termination restrictions and of following proper contractual termination procedures.
The High Court’s decision on 18th May 2005 allowed 35 key ICAP employees to resign ‘en masse’ and to commence work for BGC immediately.
The majority of the employees who resigned were inter-dealer brokers and made up a major part of ICAP’s business.
ICAP sought to block their staff’s resignations through injunctions, enforcing covenants and declining to accept payment in lieu of notice but was unsuccessful with all of these measures.
Blocking the resignations
ICAP sought various forms of injunction against BGC and the employees depending upon their position and contract terms. The applications for injunctions included two against senior employees who were referred to as the “Recruiting Sergeants” who ICAP alleged had orchestrated the mass resignation. ICAP sought Court orders:
- enforcing restrictive covenants which prevented certain employees from competing with ICAP or from soliciting or dealing with their customers;
- enforcing the notice period as “garden leave” as (for some of the employees) ICAP had declined to accept payment in lieu of notice.
Unsuccessful legal actions
ICAP’s various legal applications were unsuccessful and the employees were entitled to work for BGC immediately and without restrictions, save for various undertakings that were volunteered by some of the employees.
The Court’s decision confirms the following points:
1. Un-enforceable termination clauses
The post-termination restrictions were void because they were wider than was necessary to protect ICAP legitimate business interests.
To be enforceable, restrictions must be focused on the specific position and work of the employee and their specific connections.
ICAP’s restrictions covered “any business, any dealings or any goods” of ICAP and “any Company of the ICAP group”. These were described as “absurdly wide” by the Court.
Even though the contract had a “blue pencil” clause allowing parts of the restrictions to be deleted if they were unreasonable, the Court decided these restrictions were so wide and unreasonable that it would not undertake an editing process.
2. Springboard injunctions
ICAP sought various injunctions as follows:
A “springboard” injunction preventing BGC’s employees gaining an unfair advantage from the so-called conspiracy to induce the mass departure.
“Springboard” injunctions prevent an employee gaining an unfair trading advantage from a breach of his obligations (even where there are no express restrictions). However “springboard” injunctions would generally be granted only where there was a misuse of confidential information. That was not the case for these employees. Further, ICAP had voluntarily released most of the employees from their express restrictions, which lasted for three months.
The Court indicated that even if a “springboard” injunction had been available (which was not the case as the breach did not relate to confidential information) it would still not have granted one as:
- when the employees resigned, ICAP released most of them from the express restrictions. It was inconsistent to then try to restrict them from competing based upon implied restrictions; and
- the express restrictions agreed between the parties were three months whereas ICAP was seeking a six-month restriction.
3. Payment in lieu of notice
An employee can terminate his or her employment immediately under section 7 of the Employment Ordinance by paying, in lieu of notice, the amount of wages which would have accrued during the notice period. The employer does not have to agree or consent to this.
Protecting your company
Post-termination restrictions must be properly drafted to make sure they are sufficiently focused to protect only confidential information and customer or colleague relationships which the employee is actually likely to have.
If the clause is badly drafted an employer cannot trust or rely upon a “blue pencil” clause to edit any unreasonable parts. If the clause is far too wide the Court may be unable or unwilling to help the employer save its flawed contract restrictions.
Proper advice should be taken on procedures when dealing with a departing employee to ensure that anything said or done does not waive or jeopardise the employer’s other rights.
If you wish to know anything further in relation to this or any other aspects of employment or human resources law, please contact us.