Remote working and the disruption of the pandemic have created opportunities for some entrepreneurial firms looking to recruit disenfranchised individuals from their competitors. Team moves are notoriously difficult to achieve – perhaps impossible – without litigation risk, but the upside of moving a successful team could be significant, write Remziye Ozcan and Shiv Raja of Fox & Partners
Partners are likely to owe stringent duties to their firms, including duties to act in good faith in the best interest of their firm, to make full disclosure of information material to the firm’s business and not to put themselves in a position where their own interests and the interests of their firm are in conflict.
Firms facing the risk of losing a team may adopt a legal strategy with the aim of disrupting plans, which may involve joining a recruiting firm to any intended legal action. Legal claims against recruiting firms may include inducing a breach of contract, conspiracy and misuse of confidential information. There is a significant risk of adverse costs if the claimant firm gets this wrong. So how do recruiting firms stay on the right side of the line?
Each member of a team should be recruited independently by the recruiting firm without the assistance or involvement of partners or employees in the departing team. Useful tools might involve the publication of a job advert by the recruiting firm which closely matches the skill sets of the employees the recruiting firm would like to follow a lead partner, or the use of a recruitment consultant.
Early engagement of a recruitment consultant may assist by identifying market talent and ensuring an independent route to individuals in a team. A prudent recruiter should make it clear to candidates that they should not act in breach of their obligations to their existing firm. Contemporaneous notes of conversations with candidates and a written brief from the recruiting firm about potential recruits may prove useful evidentially. It is in the recruitment consultant’s interests to get things right too. It is not uncommon for non-party disclosure applications to be made against recruiters if claims are brought.
Interviews and conduct
Meeting with the partners together should be avoided and it is sensible to make clear that opportunities discussed must not be discussed with other team members. Caution should be exercised if non-disclosure agreements are used in order to avoid allegations of interference with disclosure obligations to current firms.
Individuals often forget the existence of their digital footprint, especially in emails, text messages, WhatsApp communications and social media. All are potentially disclosable in any litigation. Mobile phone records are likely to be interrogated as to timings of calls between recruitment consultants, team members and the recruiting firm. Use of personal mobile phones is unlikely to provide a shield against disclosure of relevant material.
Lateral partner questionnaires are common in professional practice recruitment and often contain requests for details of clients and revenue. It can be tempting to ask for this information or detailed business plans without having fully considered the risks of breaching duties of confidentiality. In an ideal world, any information provided should be general, non-specific and based on publicly available material. An unlawful advantage gained by provision and use of this information could be used to obtain injunctive relief from the court, even if restrictive covenants are otherwise potentially unenforceable.
Knowledge is a key component of most causes of action against a recruiting firm. Inducement of a breach of contract requires knowledge of both the term in the contract (or the turning of a blind eye to it), and that the conduct which is being induced or procured would result in a breach.
Conspiracy allegations usually involve a detailed investigation into the extent to which the recruiting firm shared a common objective to move a team and knew that the objective was to be achieved unlawfully.
It is advisable to obtain copies of restrictive covenants in any existing partnership agreement and to obtain legal advice on their enforceability. If favourable advice is obtained that it is more probable than not that a restrictive covenant is not enforceable or that there would not be a breach, a recruiting firm can rely on it to defend a claim for inducing a breach of contract, even if it later turns out to be wrong.
Disputes of this nature are regularly played out behind closed doors due to the operation of arbitration agreements. A robust strategy before recruitment efforts commence may avoid litigation or ensure a strong defence can be advanced.