Viewpoint: Employing a competitor

The battle being fought between the Saatchi & Saatchi group and its former chairman, supported by a rapidly growing army of disgruntled former colleagues, reveals only too clearly the perils faced by any business whose prime asset is its employees . In a"people" business clients tend to have a strong bond with the employee or team who has nurtured their account, understands their culture and who has "delivered the goods" in the past. The departure of the key player in a team that handles a client 's account can herald the loss of that client and a haemorrhage of other team members. However, such an outcome need not be as inevitable as some commentators on the Saatchi debacle would have us believe. A well-thought-through commercial strategy couple d with the right legal framework in the employment contracts of key personnel can ensure that the employer keeps the upper hand. A determined poacher of clients (or a client determined to leave) is ultimately as impossible to thwart as a committed assass in,but battles between employer and employee and, coincidentally, between shareholders and boardroom such as those being fought in the Saatchi case can and should be avoided at all costs.

The most valuable weapon of the employer in a people business is commercial strategy, with the emphasis strongly on prevention rather than cure. That commercial strategy should comprise three main elements: 5 Structuring the team servicing the client in such a way as to minimise the risk of an all-out defection; 5 Avoiding having a single dominant member as the leader of the team. Unpalatable as it may seem, having a second "prima donna in waiting" eager to assume the mantle of leader may prove your best investment; 5 Listening to the client and making him feel, in so far as is commercially expedient, that his concerns are being addressed. This lesson in particular has been hammered home by the Saatchi affair. The chief executive of Mirror Group Newspapers, a client of Saatchi, has said: "The board of Saatchi ignored the concerns of Mirror Group Newspapers about the departure of Maurice Saatchi ..." Another commentator from within the advertising industry has reported: "The depressing thing for the advertising business is that, once again, clients seem to be considered last of all."

The commercial strategy must, additionally, maximise the possibility of the employer learning of any actual or prospective competitive activity at the earliest opportunity, thus enabling the employer to consolidate the position with his clients. Employees planning to leave and set up in competition invariably cannot resist the temptation of gaining what they regard as a legitimate head start. Typically, employees will copy (or occasionally memorise) confidential information such as client lists, clientrequirements, trade secrets or the company's strategic business plans. In addition, employees who are plotting their escape tend to sound out clients' attitudes to their plans. Employees often think that these preparations are "fair game", largely becaus e, like exceeding the speed limit, "everyone does it". In fact, these activities are not permissible and can provide the employer with just the ammunition he needs to obtain an interlocutory injunction to prevent the former employee from, for example, de aling with a particular client for a limited period even when there is nothing in the employee's contract to stop him for competing after his employment ends. This type of injunction, known as a "Springboard injunction", is designed to stop an employee f rom profiting from his ill-gotten advantage.

A vital backup to the commercial strategy is the legal framework of the employment contract itself. As an absolute minimum, contracts of all team members should include the following: 5 An express statement of the employee's duty of fidelity, including anegative obligation not to injure the employer's business; 5 Clear reporting procedures, including an absolute obligation on the employee to report straightaway any matter that might materially and adversely affect his employer's interests; 5 A prohibition on some or all outside activities; 5 Agreed notice periods, which, following a recent case, should arguably be the same for each team member; 5 A right by the employer to send the employee on "garden leave", ie retain the employee's services but cut off his contact with clients, once notice has been given; 5 A right for the employer to make a payment in lieu of notice; 5 An express confidentiality clause operating both during and after employment; and 5 Individually tailored restrictive covenants torestrict a former employee's ability to deal with and provide a competitive service to clients of the former employer.

Having to resort to enforcing restrictive covenants in a contract can be seen as a defeat on the part of the employer; certainly the employer risks being seen to be "dictating" to the client who he or she can or cannot deal with. However, the existence of such covenants and the threat of their enforcement provides an extremely useful negotiating tool which can lead to a commercial solution, probably the only alternative to what will otherwise be long-term warfare in the Saatchi case.

Finally, employers who have heeded the message above and have taken the trouble to plan their commercial strategy and draw up proper contracts still need to be very careful not to lose the commercial advantage they have gained. If an employer commits a fundamental breach of an employment contract, for example if he wrongfully dismisses the employee or freezes him out by making his life unbearable so that the employee is forced to resign (known as constructive dismissal) then the employer will not be able to rely on the restrictive covenants in the employment contract. In some cases, this can also preclude the employer from obtaining an injunction based on breaches of contract prior to termination. We can expect such arguments to be run by the defendants in the Saatchi litigation.

Kate Brearley is head of the employment and pensions group at the City solicitors Stephenson Harwood and co-author of `Employment Covenants and Confidential Information, Law, Practice and Technique' (Butterworths 1993). Sarah Linton is an assistant solicitor in Stephenson Harwood's Employment Group.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Reach Volunteering: Trustees with Finance, Fundraising and IT skills

    Voluntary and unpaid, reasonable expenses reimbursable: Reach Volunteering: St...

    Day In a Page

    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
    Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

    The Arab Spring reversed

    Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
    King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

    Academic claims King Arthur was real - and reveals where he lived

    Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
    Who is Oliver Bonas and how has he captured middle-class hearts?

    Who is Oliver Bonas?

    It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
    Earth has 'lost more than half its trees' since humans first started cutting them down

    Axe-wielding Man fells half the world’s trees – leaving us just 422 each

    However, the number of trees may be eight times higher than previously thought
    60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

    60 years of Scalextric

    Model cars are now stuffed with as much tech as real ones
    Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

    Why are we addicted to theme parks?

    Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
    Tourism in Iran: The country will soon be opening up again after years of isolation

    Iran is opening up again to tourists

    After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
    10 best PS4 games

    10 best PS4 games

    Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
    Transfer window: Ten things we learnt

    Ten things we learnt from the transfer window

    Record-breaking spending shows FFP restraint no longer applies
    Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

    ‘Can we really just turn away?’

    Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
    Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

    Nine of Syria and Iraq's 10 world heritage sites are in danger...

    ... and not just because of Isis vandalism
    Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

    Girl on a Plane

    An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    Why Frederick Forsyth's spying days could spell disaster for today's journalists

    The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent