In today’s competitive business landscape, it’s common to see employees take up new opportunities and move on from your organisation. However, when a group of employees coordinate their departure to join a competitor or to start a rival business, the stakes for employers can be much higher. Team moves present unique challenges, from operational disruption and the loss of key talent to potential legal disputes over breaches of contract and misuse of confidential information.
This article explores the complexities of team moves, outlining the legal and business risks they pose, the protections available to employers, and the practical steps you can take to safeguard your business interests.
Whether you are managing the fallout of a team departure or planning to hire a group of employees from another organisation, understanding the legal consequences of a team move is essential. Our employment law experts talk you through your options.
Contents:
- What is a team move?
- What are the risks for your business?
- Do employment contracts provide any protection?
- What should you do if you suspect a team move?
- What should you do if a team actually resigns?
- What legal steps can you take if a team resigns?
- What if you’re the one hiring a team?
- What practical steps can you take to protect your business?
What is a team move?
A team move is a situation where two or more employees leave your business to either set up a competing business or join one of your competitors. Team moves normally involve coordination between the employees, and sometimes encouragement by the new employer that’s hiring them.
If you are faced with a team move, you may need to consider taking legal action against departing employees and potentially their new employer.
What are the risks for your business?
Team moves are often a high-stakes situation for employers, especially when departing employees have access to sensitive information or key relationships. The main risks for employers include:
- Loss of business: Employees may try to take your customers and clients with them, either to a new employer that competes with your business, or to a competing business that they’re planning to set up. This could lead to severe financial repercussions for your business. Being able to exploit past relationships with customers and clients is often a top priority when a group of employees decide to leave and join or start a competing business.
- Breach of confidentiality: Employees in senior, specialised or technical roles often have access to business-critical confidential information, valuable trade secrets and intellectual property. This could include knowledge of algorithms, access to source code or proprietary designs, as well as knowledge of future business plans. If employees misuse your confidential information in a new or competing business, this can undermine your market position and lead to significant financial and reputational harm.
- Data security risks: Employees planning for a team move may take preparatory steps for the move which could involve downloading sensitive data before giving you notice of their resignations. This could include downloading datasets of customer contacts from your CRM or making copies of confidential information, all of which they could use to their advantage in a competing business and potentially create cybersecurity and data protection risks for your business.
- Poaching of remaining employees: Once a group of employees has left your business for a competitor, there is a real risk they will try to take others with them in the future. It’s not uncommon for team moves to be staggered in this way to minimise suspicion.
- Loss of skills: Since team moves involve groups of employees leaving your business at the same time, this can leave critical skill gaps within your business. The sudden loss of expertise can harm your ability to meet business needs, for example servicing your customers, maintaining your technology, or supporting essential operations. The short notice associated with many team moves may not provide you with enough time to recruit and onboard suitable replacements, creating operational disruption and potential damage to customer relationships.
- Reputational damage: If the move becomes public knowledge, it may signal instability to the market and your remaining employees. This could lead to a loss of trust, further resignations, or difficulty recruiting new hires who may be hesitant about joining your business.
- Legal and financial costs: Team moves often require some level of legal action, whether sending letters to the departing employees and a new employer or escalating more formally to litigation. These processes can be time-consuming and costly and divert resources away from the day-to-day activities of the business.
Given these risks, it’s important to make sure your business is protected before a team move takes place and that you take all necessary actions to reduce the risk to your business.
Do employment contracts provide any protection?
Yes. Employment contracts can provide employers faced with a team move with protection against the risks of team moves. A well-drafted employment contract should include express terms that deal with the risks of employee competition. These include:
Restrictive covenants
Employment contracts often include a suite of post-termination restrictions that apply for a defined period of time following an employee’s termination of employment. This normally includes restrictions on poaching (or trying to poach) customers and employees, meaning an employee would be in breach of contract, and an employer could take legal action if they tried to do so after they leave your business.
In some cases, the contract might also include express non-compete restrictions that prevent the employee from engaging in activities that compete with your business. There have been suggestions in recent years that non-competes might be banned or restricted (as has been the case in the US), but as of now, they remain lawful in the UK.
Although restrictive covenants can be helpful for employers and serve as a visual signal to employees that they should refrain from competitive activities after they leave, it’s important to note that there’s never any guarantee that a court will enforce them. The courts consider whether the restriction is reasonable and goes no further than necessary to protect an employer’s legitimate business interests.
As such, these types of restrictions must be drafted carefully at the outset of employment with specialist advice from an employment solicitor.
Confidentiality clauses
Employment contracts commonly include requirements on the employee to keep information confidential both during and after their employment with your business, and not to misuse or exploit confidential information. A well-drafted employment contract will include a robust definition of confidential information tailored to the type of information the employee might encounter during their employment, allowing you to take action for breach of confidentiality.
Reporting requirements
Employment contracts might include express requirements on the employee to disclose any offers of employment that have been made from a competing business, requiring the employee to disclose the identity of the competitor and to provide a copy of any post-termination restrictions to the competitor. This is more common for employees in senior or specialised roles and is designed to mitigate the risks of team moves by giving you transparency over competitive offers before someone leaves. It also gives the competitor notice that the relevant employees are subject to post-termination restrictions, meaning the competitor would need to proceed with caution before hiring them.
Notice periods and garden leave
Including appropriate notice periods for employees will help mitigate the risks of team moves by giving you sufficient time to investigate a potential move before the employees leave your business, and if necessary, to take legal steps to protect your business. It also gives you time to recruit and hire replacements to reduce the impact of a team move on your business operations.
Garden leave clauses also help by giving you a contractual right to keep the departing employees away from your business during their notice periods. This means they can be kept away from your customers, remaining employees and confidential information during their notice period, reducing the potential for the departing team to damage your business by poaching customers and accessing sensitive business information.
Implied terms
It’s not only the written terms of the employment contract that can protect employers. In certain circumstances, the law implies terms in the employment contract even if they’re not expressly written into the contracts. These include the duty of mutual trust and confidence, which means employees must not act in a way that breaches the employment contract (eg misusing confidential information).
Certain employees might also owe what are known as fiduciary duties to your business. This is the case for employees who also act as directors of your company and would prevent them from diverting business away from your company during employment (eg developing business relationships with your customers while they prepare to leave) and require them to disclose their misconduct.
What should you do if you suspect a team move?
In some cases, you might become aware that a team is planning to move before they inform you of their intention to do so through resignations (eg you might have heard about the employees’ plans informally from other members of staff).
Although team moves can be time-pressured situations for businesses, you should first try to obtain as much information as possible by investigating matters and closely reviewing contract terms for any unlawful conduct. You should:
- Gather evidence quickly. Work with your IT teams to collect digital evidence, such as emails, documents, recorded telephone calls and work phone devices. Make sure your teams check whether the employees have downloaded or made copies of any confidential information including customer lists and technical know-how.
- Hold investigation meetings. Once you have gathered relevant evidence, and it’s clear from the evidence that a team may be preparing to move, you should meet the relevant employees under an investigation processto gather the facts, rather than making accusations and coming to conclusions. This will help you to decide whether you need to escalate matters, including taking legal action.
- Closely review contractual terms. Having gathered the evidence and established the facts under an investigation, you should check the employees’ contracts of employment to establish whether there is any actual or potential unlawful conduct.
It would be wise to discuss the findings of your investigation with one of our employment law solicitors. Our team can help you identify whether the employees are in breach of their employment contracts before you to take further action.
What should you do if a team actually resigns?
If a team resigns unexpectedly, it’s important to explore immediate practical steps to contain the situation before exploring more severe steps. It’s useful to first try to meet the employees to discuss their plans before their last day of employment, taking care not to tip them off that you might be planning further action against them. You can achieve this through informal meetings or exit interviews to understand where the employees are going. This will allow you to decide whether you need to secure data and investigate matters more formally.
If the employees are subject to post-termination restrictions, you should remind them of these obligations when acknowledging their resignations. It can also be helpful to send a follow-up reminder of these obligations as they approach their final day of employment as part of their offboarding process.
You should enforce notice periods in full and resist any requests to shorten the notice periods. This will give you time to consider the implications of the team move and prepare for further action if necessary. If there is a contractual ability to place employees on garden leave, you should consider whether you wish to do so, taking into account the risks if they continue to be involved in your business during the notice period.
You should not generally dismiss employees who you suspect may be leaving to join a competitor or start a competing business. This could give rise to unfair dismissal claims which might help them join a competitor sooner than they otherwise would. Dismissal also carries the risk of employers being in breach of contract (eg if you do not give full notice or pay in lieu of notice). This would mean important protections in the contract of employment including post-termination restrictions would be unenforceable against the employees.
What legal steps can you take if a team resigns?
If it’s clear the employees will be engaging in competitive activities after they leave your business and this is in breach of the terms and conditions of their employment, you may need to escalate matters more formally by taking legal steps to protect your business.
Letters before claim
One of the first steps usually involves writing to the employees to warn them of legal action. This is known under the Civil Procedure Rules as a letter before claim.The purpose of the letter is to set out the allegations and unlawful conduct, but importantly to try to seek resolution of the matter before escalating to more severe legal action such as litigation.
Letters before claim in team move situations typically explain, from the employer’s perspective, what the employees are planning to do and why this is a breach of contract. They will often include copies of the relevant terms of the employment contract (eg post-termination restrictions and confidentiality terms) and request legal undertakings from the employees. This could include undertakings from the employees that they will comply with any post-termination restrictions and/or return or destroy any confidential information in their possession.
In some cases, employers may need to send a letter before claim to the new employer as well. This is often the case where an employer suspects that a competitor has facilitated the team move and needs to take legal action against the new employer (eg for inducing a breach of contract or conspiring with the employees to move).
From the employer’s perspective, the preferred resolution from the letter before claim is for the employees to refrain from any competitive activities or misuse of confidential information. While it’s generally less of an issue for employees to agree to confidentiality undertakings, they will often be reluctant to agree to undertakings that require them to abide by their post-termination restrictions (this would require them to wait for their post-termination restrictions to expire, potentially resulting in them losing their job offer). As such, there can often be some negotiation over the undertakings themselves, and it’s important to seek legal advice before agreeing anything with the employees.
Interim relief
If it’s not possible to resolve the matter informally through undertakings and negotiation, employers may need to start more formal legal action. As team moves often create serious and immediate business risks to the employer and litigation can be a lengthy process, employers can apply to the High Court for various court orders that are designed to provide interim relief while the parties wait for a full trial. These include:
- Orders for the employees to return or destroy confidential information, to preserve and disclose documents, and for searches of the employees’ premises and devices.
- Interim injunctions, for example, to enforce post-termination restrictions (eg non-competes and non-solicitation restrictions) and to prohibit the employees from using the employer’s confidential information.
- Springboard injunctions that aim to prevent employees who have misused confidential information from getting a head start when competing with their past employer.
Interim relief is designed to prevent a party from gaining an unfair advantage while the parties wait for a full trial. It is typically applied for at the same time as submitting the claim form for legal action against the employees and/or new employer. Most team move cases do not generally proceed beyond the interim relief stage – interim orders usually result in the parties discussing an informal settlement of the dispute without going to a full trial.
Final relief
If the parties haven’t been able to resolve the dispute at the interim relief stage, or the employer hasn’t opted for interim relief, the team move dispute would need to move to a final trial with the High Court deciding on appropriate final remedies. The types of remedies the High Court can order include damages for breach of contract, damages against the new employer (eg for encouraging the employees to breach their contracts) and an account of profits.
What if you’re the one hiring a team?
While this article considers the risks of groups of employees leaving your business for a competitor, it’s equally important to take care if you are the organisation recruiting a team from another business. Recruiting a team from another business can expose you to legal claims, including allegations of inducing a breach of contract (eg encouraging employees to resign in breach of their contracts) or conspiring with employees to facilitate their departure. If another business successfully takes you to court for doing so, you could be ordered by a court to pay damages. Even if you don’t end up in court, you risk a protracted dispute and negotiation with the other business which could divert valuable time and resources away from running your business.
To minimise these risks, employees should proceed with caution before recruiting teams and consider the following steps:
- Review post-termination restrictions. Check whether the employees are subject to any post-termination restrictions (eg non-competes and non-solicitation clauses) that might prevent them from joining your business or limit their activities once they joined. Where possible, request copies of these restrictions from the employees to assess their enforceability and scope.
- Structure discussions carefully. Ensure that any discussions or negotiations with the prospective team are structured in a way that minimises the risk of legal claims. Avoid taking action or engaging in discussions that could be interpreted as encouraging employees to breach their contracts. Ideally, you should frame discussions and offers in a way that it is the employees’ decision to leave their current roles and that you do not condone any breach of contract.
- Seek legal advice. If it’s obvious the employees will be in breach of their contracts by joining your business, you should seek legal advice before proceeding with their recruitment. Our employment law solicitors can advise you on practical team move strategies and how to structure them in a way that minimises legal risk.
What practical steps can you take to protect your business?
- Contracts of employment. When hiring senior employees or employees with specialist and technical skills who will have access to significant amounts of confidential information, make sure their contracts of employment include water-tight post-termination restrictions, confidentiality provisions, robust notice periods and garden leave clauses. The contract should include obligations on the employee to notify you of any competitive offers, and for director-level employees, obligations to notify you of their misconduct or misconduct of any coworkers.
- Review and update contracts periodically. Take steps to review terms and conditions for staff, particularly at key points in the employment life cycle such as promotions or where staff have been in roles for a long period of time. This is to ensure you have appropriate protections in the employment contract as roles and access to confidential information change.
- Protect confidential information and data. Make sure you have systems in place to identify the parts of your business that hold significant amounts of confidential information, trade secrets and technical know-how (eg through data mapping). Protect all confidential information with secure systems, label sensitive information as confidential, and ensure confidential information can only be accessed by employees who truly need it for their role. Work with IT teams to conduct regular audits of your cybersecurity systems. Ensure that employee access to sensitive data is monitored and implement tools to flag suspicious activity.
- Workplace policies. Put in place robust policies and procedures around IT access and handling data. As a minimum, your staff handbook should include a bring-your-own-device policy, data protection policy and an acceptable use policy. You may also wish to have a social media policy covering company ownership of client contacts on platforms such as LinkedIn.
- Monitor early warning signs. Be vigilant about potential indicators of an upcoming team move, such as unusual resignation patterns, sudden increases in data downloads, or coordinated leave requests. Encourage open communication with managers to address employee concerns before they escalate into departures.
- Training. Make sure your HR teams understand the legal and business risks that can arise from team move situations and the steps they must take to protect the business should they become aware of a team move situation. Talent acquisition teams should also be trained on the legal risks that arise when hiring teams from another business.
- Build employee engagement and loyalty. Fostering a positive workplace culture is central to minimising the risk of a team move. Invest in employee engagement initiatives, provide clear development opportunities, and create a strong sense of belonging within your organisation. Employees who feel valued and satisfied are less likely to consider leaving, especially as part of a team move.
Our employment law solicitors have extensive experience in supporting you and your business if you are facing a team move. They are on hand to talk you through the process, advise and mediate between you, the employees and any future employer, and guide you through the decision to take legal action if necessary.
