The High Court has released its ruling in the case of a dispute between two financial broking companies based on claims that one unlawfully poached 50 brokers from the other. The High Court has ruled that unlawful poaching did take place but has not settled the level of damages, although it is understood that Tullett are seeking in the region of $500m in damages. It is possible that Tullett and BGC will now agree an out of court settlement but if not the case will come back to the High Court for quantification of damages.

Facts

Broking house Tullett Prebon claimed that a competitor, BGC Partners (previously part of Cantor Fitzgerald) was involved in an illegal plot to poach Tullet's staff.

The case concerned a Mr Verrier who was a senior employee of Tullett and left to join BGC. He then sought to recruit large numbers of the broker team from Tullett. There has been much litigation including, interim injunction applications. This has culminated in a lengthy Judgment from Mr Justice Jack on 18 March this year following a trial which took place over the autumn of 2009 and early part of this year.

The Judgment is lengthy and very detailed, both on the facts and the law. It is very helpful in stating the law in a wide number of areas, as well as giving a fascinating glimpse of the sort of things that were going on within Tullett and BGC. The essential allegation was that Mr Verrier conspired with BGC to induce employees of Tullett to breach their contracts with Tullett in two ways. The first was in seeking to leave prior to the end of fixed term contracts and secondly by encouraging senior employees within Tullett to assist in the recruitment activity. A solicitor appears to have been quite heavily involved in the "conspiracy" although he was not actually a party to the litigation.

The claims brought by Tullett against BGC and Mr Verrier for conspiracy and inducing breach of contract succeeded on both counts. The arguments relating to inducing a breach of contract were based on two aspects.

False constructive dismissal claims

The first was trying to get the employees out from Tullett prior to the end of their agreed fixed term contracts. It was clear on the evidence that BGC had a strategy of trying to get the individuals out as early as possible and to get them out "en masse" as opposed to in dribs and drabs as and when their contracts came to an end. What was clearly happening was that Mr Verrier was whipping up the individuals to encourage them to assert constructive dismissal. He was encouraging them to act in such a way so as to try to encourage repudiatory breaches by Tullett. However, what was clear was that they would use the slightest pretext for asserting constructive dismissal, whether or not there were genuine grounds for doing so. The case on getting senior employees to assist in the recruitment was based on desk heads being encouraged, financially and otherwise, to persuade their teams to leave with them as well as getting them to provide financial information about the team to assist BGC in recruiting them.

Recovery of retention payments

There was a separate issue concerning claims by Tullett to recover retention payments to staff that were leaving. In effect, the way in which the contractual arrangements worked was that staff would be given substantial retention payments in return for signing up to fixed term contracts often lasting 2 or 3 years, at the expiry of which there would be a re-signing exercise and a further retention payment. The relevant contractual provisions provided that if the employee leaves during the course of the fixed term then the relevant retention payment would be repayable. There was a discussion in this case as to whether those repayment provisions represented a restraint of trade.

The conclusion that the High Court reached was that there was no restraint of trade if such provisions provided that the amounts were repayable regardless of the reason why the individual left. If Tullett had said that the retention payments would only be repayable if the individual went to a competitor then it would be a restraint of trade and therefore questionable but because it was simply linked to whether or not the individuals remained employed by Tullett , the High Court ruled that there was no restraint of trade and the repayment provisions were enforceable.

Garden leave and restrictive covenants

There was also discussion around the period for which individuals should be kept out of the market on a combination of garden leave and restrictive covenants. The Judgment almost treats the two as interchangeable, the key issue being the overall period for which the individual is kept out of the market. Obviously any such case will depend on all of the circumstances, including no doubt the conduct of the parties.

Conclusions

Here it was clear that the individual employees as well as BGC had acted very far from honourably and that may well have been a factor. Whatever the basis, the period of garden leave/non-compete restraint which the High Court imposed was 12 months. This is clearly quite a long period of time. I anticipate that it will become talked about as something of a benchmark in terms of the period for which it is reasonable to keep somebody out of the market. This will be relevant in hw employers draft restrictive covenants and deal with related arrangements.

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