Hiring talent from a competing company can help bring commercial and tactical advantage to your business. But if it is your employees that are at risk of being ‘poached’, this can have a devastating effect on your business, not least where a particular individual or team of employees are highly valued within your organisation.
It is therefore important for businesses to understand their rights, both when recruiting employees, or when you suspect a rival employer is poaching staff from your organisation.
What is ‘poaching’?
Poaching refers to a situation where a company hires one or more employees from a competitor or similar company to leverage for commercial advantage the employee’s knowledge of their former employer, client contacts and their particular specialised skillset.
Skilled or senior employees who have been poached by rival employers can often take more than just their expertise to their new role – more employees, clients and valuable income typically follow a ‘poached’ employee.
When is poaching staff permitted?
Poaching staff from a competitor is not, in itself, unlawful.
It is common for employers to want to recruit staff with industry knowledge and who understand their client base. There is no harm in a rival employer prospecting potential candidates in this way, irrespective of whether or not they are working for a competitor.
Equally, employees are allowed to choose where they want to work and to judge when it is time to move on to a new job. Talent naturally wants to progress, which often means pursing employment opportunities with another organisation.
If an employee complies with their notice provisions under the terms of their employment contract, resigning will not, in itself, constitute a breach of contract.
Further, without contractual provision preventing the employee from working for a rival employer (such as restrictive covenants and non-compete clauses), or otherwise restricting their post-termination employment activities, poaching staff in the UK is permitted.
How can I prevent employees from working for a rival employer?
As an employer, there are a number of measures you can take to prevent a rival employer poaching your staff, or at the very least to minimise its impact – from introducing carefully drafted post-termination restrictions within your contracts of employment, to providing incentives or otherwise encouraging highly valued employees to remain on board with your business:
Incorporate restrictive covenants
A well-drafted restrictive covenant can restrict all types of post-termination employee activities. These are contractual provisions that continue to operate after the employment has come to an end.
Whilst the law will not enforce a restrictive covenant merely to stop competition, nor enforce a restriction that unreasonably prevents someone from pursuing their career, the courts will protect an employer’s legitimate business interests.
Generally speaking, a restrictive covenant will only be considered reasonable for a period of up to 6 months post-termination, although restrictions of up to 12 months may still be enforceable for a former employee in a senior role or those with a specialised skillset.
The most common restrictive covenants that can be used to prevent or minimise the effects of a competitor poaching staff include:
- non-compete clauses – restricting a former employee from working for a competitor, usually within a certain geographical area.
- non-solicitation clauses – preventing a former employee from poaching existing or prospective customers or clients.
- non-dealing clauses – preventing a former employee from dealing with former customers or clients, regardless of who approaches the other.
- non-poaching clauses – preventing a former employee from enticing former colleagues to join his/her new employer.
- confidentiality clauses – preventing a former employer from passing on confidential information or trade secrets to his/her new employer.
By restricting employees to garden leave following their notice of resignation, you can add an extra layer of protection when a competitor is poaching staff. In this way transitioning workers may be prevented from accessing client lists and/or confidential data, or persuading other employees to jump ship.
Vary employee-client relationships
By ensuring that your clients are not just looked after by one individual, or one small group of individuals, you can minimise the risk of that client remaining loyal to a particular employee, regardless of where and for whom they work.
The importance of employee-client relationships should not be underestimated, where client loyalty often lies with individual employees with whom the client has had dealings with over an extended period of time.
Whilst it can be equally as important to maintain consistency so as to not risk losing a client’s business altogether, a balance must be struck between caretaking the client and promoting company rather than client-employee loyalty.
Identify employees most at risk from moving
If you are able to identify employees, or teams of employees, most at risk from moving, and focus your efforts on keeping them on board, you may be able to prevent competitors from poaching staff altogether.
Providing new career development opportunities, not to mention financial and other incentives, can often help with staff retention.
By identifying ‘at-risk employees’, you may also be able to identify in advance any data breaches, such as misuse of client contact lists or confidential information, as well as attempts by an employee to entice other employees to join a rival employer. In this way you will be forewarned of any threatened move.
Prepare your strategic response in advance
If you are aware of an imminent problem, in particular where you suspect that a number of employees may be leaving en masse, you will need to respond with a clear and concise strategy.
When dealing with a threatened team move you should attempt to establish which team members are involved and review their contracts of employment for any provisions restricting post-termination activities.
You should remind employees of these restrictions and inform them of your intention to enforce these covenants by legal action in the event of a breach.
By analysing the interaction between employees and clients, you may also be able to identify any clients at risk of being poached.
Can I legally prevent a rival employer from poaching staff?
In the event that a former employee is in breach of any post-termination restrictions, you can ask the court to enforce these provisions, typically by way of an interim injunction pending a full court hearing. You may also seek to recover damages for any financial losses sustained in consequence of any breach.
If successful, this will prevent your former employee and their new employer from proceeding unimpeded. It may also warn your competitor against poaching staff in the future.
There are also some circumstances that can directly expose the rival employer to legal action. In particular, new employers need to be aware that they can be liable for inducing a breach of contract where they have enticed away an employee subject to post-termination restrictions.
That said, these types of cases can be difficult to prove, not least because it requires proof of actual knowledge on the part of the rival employer of the restrictive covenants imposed on the employee by his/her former employer.
It is also impossible to predict with any certainty how a court will interpret a restrictive covenant. If drafted too widely, the court will not imply reasonable limitations. It will only enforce a restriction where necessary to protect a legitimate business interest.
What if I want to poach staff from a competitor?
If you are looking to recruit new staff, or perhaps you have identified a current or former employee from one of your competitors that you would like on-board, you must always bear in mind the risk of litigation.
Your new employee may be legally prevented from working for you under the terms of any restrictive covenant. Moreover, as their new employer, responsible for poaching that employee, you may find yourself subject to costly and protracted court proceedings for inducing any breach of contract.
To avoid the risk of litigation, you should always make enquiries with prospective recruits about any post-termination restrictions. It would also be prudent to ask to see a copy of their contract of employment if possible.
In the event that there is contractual provision, preventing the employee, for example, from dealing with existing clients or enticing their colleagues to leave, you should provide written instruction not to do so. In this way, you will avoid any liability for “inducement”.
Should I seek legal advice if I suspect a rival employer is poaching staff?
The law relating to poaching staff can be complex, not least in relation to restrictive covenants and inducing a breach of contract. Court proceedings can also prove to be time-consuming and costly.
Securing expert legal advice from an employment law specialist can provide you with the guidance you need in circumstances where your business interests are under threat, or you are at risk of being sued.
With the help of your adviser, it may be sensible to reach a negotiated settlement whereby formal undertakings not to breach restrictive covenants are agreed between the parties. Your legal adviser can also suggest strategic ways to safely recruit new staff, or to prevent a rival from poaching staff again.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.