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Alex McLeish leaving Birmingham City teaches HR a lesson if an employee leaves an organisation to go to a competitor

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With Alex McLeish recently leaving his post at Birmingham City to join arch rivals Aston Villa, the potentially contentious and expensive legal consequences of leaving one employer to work for a competitor have been firmly in the national spotlight.

Outside the privileged world of sports management, as many businesses know, joining the opposition is not simply restricted to close seasons - it is a common occurrence, particularly in highly competitive fields where talent is at a premium. The question is: how can you ensure that you are complying with your legal obligations to avoid any costly claims from bitter rivals who are still licking their wounds?

Contracts of employment generally include a provision for either party to serve notice, which effectively brings the contract to an end. Generally, communication by email has the same effect as any other communication in writing. It might be perceived as less respectful but, as a matter of law, it does not make a great deal of difference. It is important that consideration is given at senior level about specifying the valid method of communication of any notice within the contract.

Even where the contract is expressed as being for a 'fixed period', as is often the case with football managers, employers need to be aware that 'break clauses' can allow employees to trigger early termination with proper notice. However, if a fixed-term contract contains no break clause, a company is perfectly within its rights to seek damages that could include loss of profits up to the end of the fixed-term period.

When an employer receives a notice of resignation indicating an intention to comply with any notice periods and any post termination provisions - whether it is by email, letter or verbally - it is important to identify whether the employee is giving an acceptable reason for their resignation. If they simply state that it is time to move on, they have another job or are relocating, perhaps it is wise to thank them and wish them good luck for the future.

If the known intention is to join the opposition this is the point when things can get difficult in the commercial world. If a contract contains job specific and person specific post termination restrictions that are carefully drafted and reasonable, the employer may be able to make life very difficult, very quickly, for their soon-to-be ex-employee and their suitors.

In situations such as this, the more dramatic consequences can involve the use of injunctions to prevent an employee taking up a post, preventing them from persuading others to join and also stopping them from working for particular clients or customers. Where the opposition has gained an unfair business advantage from encouraging the breach they too can find themselves a party to these proceedings and having to account for a share of the profits.

We know from recent publicity that in football management the considerations are a little different and tend to focus on the payment of a fee if a manager is approached. It seems from Chelsea's recent appointment that these release fees for managers can be as much as an international's transfer fee, however, they are not common in the normal commercial world.

 

In any constructive dismissal claim, the employee has to show that the employer is guilty of acting in a way that goes to the root of the contract of employment. This can be an actual breach of contract, such as bullying or harassment, or a breach of the implied term of 'trust and confidence'.

An actual breach would be where the employee's wages are cut, whilst a breach of the implied term of 'mutual trust and confidence' could occur where the employee has been left feeling humiliated or their authority has been undermined - for example, if they have been shouted at in front of others.

The effect of a fundamental breach of contract essentially relieves an employee of all obligations contained within it. In the case of a constructive dismissal, an employer is effectively saying they are not bound by the contract. In turn, this allows the employee to treat the contract in the same way. Once the trigger has been pulled, the employer is unable to rely on a contract that they have broken.

This has led to allegations in some cases of employees tactically trying to create constructive dismissals in order to be free to work for competitors, where it would otherwise be a breach of their restrictive covenant.

It is extremely important when dealing with unsettled members of staff that employers are mindful of the need to avoid breaches of contract, whatever the provocation, particularly if the restrictions are important to the protection of the business.

As shown, when employees cross over the sacred line from one company to another, claims can be made against the member of staff leaving and the receiving company.

In Tullett Prebon Plc and others v BGC Brokers LP and others 2010 All ER (D), 186 investment fund dealers became involved in extended litigation concerning the poaching of some of Tullett Prebon's key employees. When the company found out that a team was planning to work for a competitor, it tried to persuade them to stay and, when that did not work, threatened them with litigation.

Those employees who did not change their minds decided to resign, stating that their treatment had amounted to a breach of mutual trust and confidence. They subsequently moved to rival BGC. Tullet brought claims against the employees regarding their breach of restrictive covenants and also against BGC for conspiring with/and inducing the employees to breach their contracts. In turn, the employees claimed they had been constructively dismissed.

The court found that Tullett could not have breached the contract in taking steps to persuade the employees to remain in their posts, which effectively meant that the employees were in breach of their covenants. Tullet's claim against BGC also succeeded in respect of conspiracy and inducement.

The High Court held that BGC had been 'indifferent' in relation to whether it was inducing a breach and was therefore liable. In essence, it committed an act of conspiracy, because in the eyes of common law:

There was an agreement between two or more persons.

The means underlying the agreement were lawful, but the real and predominant purpose of the agreement was to injure a third party or, alternatively, the means underlying the agreement were unlawful but one purpose of the agreement was to injure a third party.

Acts done in execution of the agreement resulted in injury to a third party.

While Birmingham City is preparing to make its next move and possibly sharpening the litigation knives against McLeish and Aston Villa, established law and previous cases clearly show that all parties need to keep their weapons at the ready when it comes to contracts of employment, even if you are not part of the glitz and glamour of the Premiership.

In today's tough economic climate, having a clear competitive edge can make all the difference - the key is to ensure you maintain that advantage by using relevant contracts at senior level, while staying within the confines of the legal white lines. The battle of the Midlands clubs may appear to be a tabloid drama being played out on the back pages. However it clearly highlights the possible dangers of shrugging off a contract and the importance of protecting yourself against claims in a bid to sign talented individuals. If you do not, the red card will be easily shown - whatever your profession.

Michael Ball is an employment partner at law firm Gateley