Law firm reports upturn in covenant cases as businesses hunt for top talent

24th October 2011

Poor redundancy strategies and increased demand for key personnel to give businesses a competitive advantage, have contributed to an upturn in corporate talent poaching, according to top 50 national law firm, Gateley. However, it seems businesses are now more prepared to fight back, with the firm reporting a significant rise in cases being brought against those breaching the terms of their employment contracts when joining rival companies.

Lawyers in Gateley's Birmingham office have seen a 25 per cent increase in fees generated from restrictive covenant cases in the last six months alone. A trend that looks set to continue according to partner Steve Goodrham, who heads up the firm's commercial dispute resolution team in England.

Mr Goodrham said: "The instability resulting from the increase in organisational restructuring has left many employees feeling vulnerable and demotivated. If you factor in the pay freezes and salary cuts that are still being implemented in some companies, then you can see why businesses are finding themselves more exposed than ever to competitor approaches towards their staff.

"We have seen a marked increase in cases where not only specific individuals, but also entire teams have been targeted. It's become an even more competitive market for recruiting senior talent and with the risk of important clients moving across with ex-employees, it would seem businesses are beginning to take a firmer stance in protecting their commerical interests and enforcing restrictive covenant clauses.

"Business heads understand the need to invest in top talent even against a backdrop of economic uncertainty, and to ensure they are in the best position for the future. This has led to more senior level hires and inevitably with that trend comes a spike in poaching from the competitor talent pool.

"A high profile example happened on our doorstep earlier this year when the then Birmingham City manager Alex McLeish moved across to bitter rivals Aston Villa. This put the legal consequences of leaving one employer to work for a competitor firmly in the national spotlight. But these incidents are not just restricted to the world of sports management, it's happening more and more in the corporate world and particularly in highly competitive fields, where talent is at a premium."

There are a number of steps businesses can take to ensure their commercial interests are better protected in the future such as ensuring well drafted restrictive convenants are included in employment contracts from the outset and tightly drafted garden leave clauses are built in to limit competitive damage. However, a business that feels an employee is already in breach of post-termination obligations such as restrictive covenants should seek legal advice quickly.

Mr Goodrham concluded: "It's vital to strike while the iron's hot if your employee is in breach of restrictive covenants within their contract and employers shouldn't be put off from pursuing a claim. The most effective legal option available to them is to obtain an interim injunction to prevent the ex-employee from working for a competitor or from soliciting customers or staff for the duration of any non-compete covenant but this must be done as quickly as possible."