Hong Kong: Team Move - The Potential Liabilities of the Team Head

Last Updated: 2 May 2011
Article by Francis Chan

When a number of employees are considering to leave their employment together and set themselves up in competition with the employer, they have to be aware of their implied duty of fidelity apart form their contractual duties and restrictions. This article will discuss certain acts and omission in relation to "team move" which may give rise to a breach of the employee's implied duty of fidelity.

Implied Duty of Fidelity

A contract of employment may set out the basic terms of employment. However, very important duties of an employee (e.g. duty of fidelity) will be implied by legislation and /or decision of the courts which also govern the employment relationship.

An employee's implied duty of fidelity can be broadly interpreted to mean an employee's duty to act loyally, in good faith and in the best interests of his/her employer's business. Duty of fidelity also includes honesty, obedience, diligence, competence and care.

Team Move

The success of a company depends on the specific knowledge, skill and connections of its key employees. It is very common for a company to recruit a whole team of employees from its competitors. For instance, a company may try to recruit a manager of its competitor and also make enquiries with that manager to see if other members of his team would like to join the competitor as well.

In such circumstances, the manager of the team must be very careful about what he can and cannot do under his contract of employment as well as his implied duty to act in the best interests of his current employer. Moreover, that manager also has a duty not to disclose any confidential information and trade secret of his employer.

Some employment contracts may contain specific provisions in relation to "non solicitation of colleagues" and "non competition" which govern the behaviour of employees if and when they are asked to approach their colleagues for a "team move". For instance, a contract of employment may stipulate that "An Employee should not solicit or entice away or endeavour to solicit or entice away any employee of the Employer" and "An employee should not solicit the custom of any person who is, or has been at any time in the previous 6 months, a customer of the Employer for the purpose of offering to such customer good or services similar to or competing with the Employer's Business." However, some employment contracts may be silent on the employee's obligations and restrictions in those respects.

In the absence of any relevant provision in the employment contract, the following cases may give you some examples of the action or omission which may be in breach of an employee's duty of fidelity concerning "team move".

The law related to "team move" has changed over the years. In GD Searle & Co Ltd v Celltech Ltd [1982] F.S.R. 92, Cummings Bruce L.J. commented that "In the absence of restrictive covenants, there is nothing in the general law to prevent a number of employees in concert deciding to leave their employer and set themselves up in competition with him." Such comments seemed to suggest that much can be done by the employees in relation to "team move" as long as there is no contractual restriction. However, in light of the following recent decisions of the court in England, the above comments may no longer accurately represent the law regarding the acts or omission of an employee in a "team move".

In UBS Wealth Management (UK) Ltd v Vestra Wealth LLP [2008] EWHC 1974 (QB), (a decision of the High Court of England in relation to a very large team move), Openshaw, J. commented that "it would be an obvious breach of their duty of loyalty and fidelity to the employer if senior employees kept silent when they knew of planned poaching raids on the employer's staff or clients and when that was encouraged and facilitated by them from within the company." The employees have failed to respect their employer's interest in maintaining staff stability which amount to a breach of their implied duty of fidelity. To prevent any future or further serious economic loss to UBS, UBS's application for injunction for springboard relief against the defecting employees was granted by the Court.

In Kynixa Ltd V Hynes and Others [2008] EWHC 1495 (QB) (another case decided by the High Court of England), the Court held that the Defendant who was a director, shareholder and a very senior employee of a company was in breach of his duty of fidelity when he failed to discuss and disclose to his employer about the active steps he was taking to explore the possibility of working for the employer's competitor and when he failed to inform his employer about the competitor's approaches made to him and other senior members of the company to join the competitor. The Defendant's actions were not consistent with the concept of loyalty which is a crucial aspect of the implied duty of fidelity. The Court also commented that the Defendant should take adequate steps to protect the business of the employer.

In Tullett Prebon PLC and others v BGC Brokers LP and others [2010] EWHC 484 (QB) (also a case decided by the High Court of England), it was held that "a duty of an employee is to protect his employer's interests. It may be a breach of duty to provide any information, confidential or not, to a rival of his employer if he knows that the information is to be used to assist the rival and to harm his employer." So, it can be seen that an employee always has a duty to act in the best interests of his/her employer.

Conclusion

The law has always looked with favour upon the efforts of employees to advance themselves, provided that they do not steal or use the secrets of their employers. However, when an employee (especially those in the senior position) has been approached or knows that other members of his/her team or colleagues have been approached by the employer's competitor, he/she has to consider what he/she should or should not do with reference to his/her contractual duties, obligations and restrictions. Moreover, he/she should also consider his/her implied duty of fidelity to act in the best interests of his/her employer and act accordingly.

IMPORTANT:

The law and procedure on this subject are very specialized and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

For enquiries: Please contact members of our Employment, Privacy and Discrimination Practice Group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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