Eleven Employees’ Switch to Competitor. Is this illegal?

Year of publication

2012


Edition number

219


Reference

Interim Injunction Court, 11th October 2012, www.rechtspraak.nl, LJN BY3785


Decision

A company, active in the consultancy market, suddenly saw eleven consultants switch over to a competitor. Did these employees break the law by doing so? And was the competitor’s action illegal?

The situation:
Till 1st October 2012 the eleven consultants worked at the consulting company serving clients in the telecoms and media. Within the company they held positions at the two highest levels. In July 2012 they cancelled their contracts in order to enter the service of a competitor. The employees had agreed on a non-solicitation clause, a confidentiality clause and a clause forbidding employees to persuade other employees to terminate the employment contract with the employer. In relation to the simultaneous departure of so many senior employees to one and the same competitor, the employer set an inquiry to the backgrounds. In this context, among other things, the laptops of the departing employees were checked. This check revealed, among other things, that the departing employees collectively prepared a business case and presented it to the new employer. It also became clear that the new employer would pay a signing-bonus to the moving employees and that the costs for legal assistance of the employees would be reimbursed by the new employer. Finally, it showed that the departing employees were requested to remove personal data from their PCs, in particular taking a number of code words in their mutual conversation into account they always used, among other things, to indicate the former and the new employer.
Of course, the employer, who would lose a complete business unit by 1st October 2012, does not stop here, and claims in summary proceedings that the departing employees and the new employer will submit correspondence and documents on the employment with the new employer and that the new employer will submit documentation on the employment conditions for the departing employees. With these documents the employer wants to comply with his burden of proof in any proceedings against the employees and the new employer. Before such a claim can be awarded, the employer must, among other things, show evidence that there is a legal relationship with the party that should submit those documents.
As for the new employer, the former employer states that this legal relationship is a wrongful act. The new employer would have committed a tort by systematically approaching employees with the aim to persuade them to enter into an employment contract.

The Interim Injunction Judge’s decision:
The Interim Injunction Court, however, rejects the claim against the new employer because its preliminary view is that, in principle, an employer is free to recruit staff and thereby to offer employment conditions that, in his opinion, justify the added value the employee will have for his company. There is no restriction to the number of employees coming from the same employer in a given period, and also making certain remuneration components subject to the co-transfer of other employees is not illegal. It would only be unlawful when the employer systematically would have approached his competitor’s staff members for joining him in order to thus undermine this competitor’s business management. This is not shown, even though it has become clear that the employees coordinated their departure in mutual contact so as to be able to negotiate better employment conditions. There would also be a tort when the new employer would enjoy unjustifiable advantage of breach of contract by the departing employees. Violation of the non-solicitation clause is not shown, even if the departing employees intend to serve one another's customers on all sides for the duration of this clause. Likewise, violation of the confidentiality clause is not shown. With regard to a possible violation of this clause in order to recruit other employees, so the Magistrate holds, there is no evidence of intent on the part of the new employer.
However, the Interim Injunction Judge awards the claim against the departing employees. According to the former employer the legal relationship consists of violating the contractual obligations (in particular the confidentiality clause and the prohibition to recruit among employees) and behaviour against commitment to good employment practices.
The Judge puts the freedom of choice of work first. The simultaneous transfer of a number of other employees is not unlawful. Nor are discussions about it, making preparations for a simultaneous transition and consulting the new employer unlawful. According to the Interim Injunction Judge there is no plausible evidence that the purpose of the joint move was to take over the entire practice in the field of telecoms and media. That would be unlawful, because it is prohibited to systematically use customer contacts in order to break down the employer’s sustainable "company flow rate". However, there is no evidence that clients have been approached. The fact that the claim against the departing employees is awarded is because in the Judge’s opinion it is very likely that during the presentation of the business case for the new employer the names of clients and potential clients are revealed to the new employer. Where one could say that the clients are commonly known; this is not the case for the potential clients. The employees, therefore, have to provide the employer with a copy of all documents relating to the presentation of their business case. Since also violation of the prohibition to recruit among employees is reasonable for certain employees who took the lead in dealing with the new employer, these employees also have to submit copies of their correspondence with the new employer and the other employees.


Comments

The departing employees and the new employer at best operated on the edge of what might just be permissible. It is conceivable that the evidence now to be revealed will show that the action was illegal. In that case the departing employees and new employer can expect a substantial claim, because fact is that the former employer loses a complete part of his practice.



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