PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
Losing a professional or sales team can be a severe blow to a business and it is not uncommon for firms to ‘poach’ such teams.
To minimise the risk of such a loss, there are steps that a firm can take, although the extent to which protection is available is limited. This is because the law, in general, wishes to promote the free movement of labour and to prevent unnecessary restrictions on a person’s ability to earn a living. Accordingly, ‘non-competition’ clauses are notoriously hard to enforce.
A recent case illustrates the difficulties firms may face. It involved an insurance broker, one of whose teams left to work for a competitor. The three employees involved were summarily dismissed on the grounds that they had breached their contracts of employment by attempting to induce clients to leave their employer and also by attempting to entice other employees away.
Their former employer sued them for damages, alleging breach of their fiduciary duty and breach of contract.
When the matter came to court, however, the former employer was unable to demonstrate that it had suffered a loss. The breach of contract claims against two of the employees were upheld, which made their dismissals justifiable. However, an entitlement to compensation for damages had not been proven.
A claim against the firm which hired the three was also dismissed: again, no damage to the business of the former employer had been demonstrated.
Costs were awarded against the former employer.
Says Gary Lee, Employment specialist at DFA Law, “It is crucial that a claim for damages is made on the basis of proven loss. No matter how reprehensible the conduct of the employees might have been, the inability of their former employer to show that their actions had actually caused a loss meant that the claim was doomed to failure.”