employment view

November 2006

 

protecting confidential information

when an employee resigns

All employees (except those on fixed term con-tracts) can terminate their contracts of employment by giving notice to their employer.

When an employee resigns his employer will be eager to know whether the employee is leaving to join or set up a competing business. If so, the employer is likely to take a number of steps to limit any possible damage to his own business, both during the notice period and after termination.

At some stage, the employer is likely to write to the employee to remind him that the employee must not (during the notice period or after-wards) divulge or use any confidential information he has about the employer’s business.

Ultimately, an employer may threaten or commence litigation against the departing employee and any business he may be joining or setting up.

An additional object of such litigation is some-times to cause maximum loss of time and money to the departing employee, so as to either "strangle at birth" any new business he might be starting, or to ruin his relationship with his new or prospective new employer.

recent case

A classic example of a confidential information dispute has just been the subject of a judgement in the recent Court of Appeal case of Fox Gregory Limited v Spinks and another.

Mrs Spinks was employed by Fox Gregory, the Estate Agents. She resigned from her employment to move to Hamptons, a direct competitor of Fox Gregory.

Fox Gregory believed that Mrs Spinks had taken a large quantity of confidential information and that she had conveyed it, or intended to convey it, to Hamptons.

So Fox Gregory did what most employers in similar situations do: they contacted their solicitors who wrote to Mrs Spinks asking for various undertakings including an undertaking that she should, within 2 days, return to Fox Gregory all property, information and disks belonging to Fox Gregory and that if she did not, they would apply to the Court for an order compelling her to do so.

At the same time, Fox Gregory’s solicitors also wrote to Hamptons, enclosing a copy of their letter to Mrs Spinks, and asking Hamptons for two things. First, to confirm whether Mrs Spinks had delivered any information to them that she had unlawfully taken from Fox Gregory. Secondly, they asked for a written undertaking that Hamptons would not seek to assist or support Mrs Spinks in any breach of her obligations to Fox Gregory. Hamptons too were given 2 days to comply.

Hamptons did not respond to the letter. So Fox Gregory’s solicitors wrote again, the day after the 2 day time limit had expired, and this time Hamptons responded by saying that they were investigating the allegations. But they did not give the assurances that had been requested in the first letter.

Fox Gregory’s solicitors wrote to Hamptons again, 5 days after the original 2 day time limit had expired, informing them that the application to the Court was about to be made.

Proceedings were issued the next day and within a couple of days there was a hearing. Shortly afterwards, Hamptons gave the under-takings that Fox Gregory required. The proceedings were then withdrawn.

who pays the costs?

The issue before the Court of Appeal was who should pay for the costs of the legal proceedings.

The Court of Appeal decided that Hamptons should pay the legal costs of Fox Gregory. The Court of Appeal accepted that Fox Gregory needed to move very swiftly, and they were not expected to wait for Hamptons to get back to them: “every day counted so far as Fox Gregory was concerned. It is well known that it is difficult and costly to prove misuse of confidential information and loss arising from that matter once those matters actually occur.”

importance of decision

This decision is of course helpful to employers who wish to bring swift action against departing employees and their new employers or business partners.


This case is also an important lesson for employers (or business partners) who receive solicitor’s letters on behalf of previous employers. Such letters must clearly be taken very seriously indeed. They should be responded to as quickly as possible. And care should be taken to address each and every issue raised by the former employer’s solicitors. The former employer would be unlikely to recover his costs of issuing proceedings if he “jumped the gun” by issuing whilst proper negotiations were going on with the new employer or business partner.

 

discretionary bonuses

Another recent Court of Appeal case has made it more difficult for employees to challenge decisions on discretionary bonuses.

Mr Keen was the manager of a proprietary trading desk at Commerzbank until his employment was terminated by reason of redundancy. He brought a number of claims against the bank, including claims for bonuses and a claim relating to the withholding of shares awarded conditionally as part of his bonus for an earlier year.

The bank applied to the court to strike out his claims for discretionary bonuses. The matter went to the Court of Appeal which had to decide whether his bonus claims had ‘a real prospect of success’. The Court of Appeal decided against Mr Keen.

exercise of discretion

Mr Keen had received a bonus of €2.8m in 2003 and €2.95m in 2004. He claimed that those figures were not sufficient as his manager had recommended a larger bonus pool. The court said: ‘… the bank has a very wide contractual discretion … it would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the bank in fluctuating market and labour conditions’.

conditional on continued employment

Mr Keen receive no bonus for 2005, as his employment had terminated during the year.

So another key issue was whether the Unfair Contract Terms Act applies to employment contracts. The argument was that if the Act applied, it would render void a condition in a bonus scheme that the employee must be in the bank’s employment to participate in the scheme. The Court of Appeal decided that the Act did not apply because Mr Keen was not dealing with the bank ‘as a consumer’, as a bank’s business is not entering into contracts of employment with its employees. Moreover, he was not contracting on the bank’s ‘written standard terms of business’, as the bank’s standard terms of business were their terms relating to their banking business.

 

letter convening disciplinary hearing

"Dear

I write further to your investigatory interview with [ ] on [ ].

I can now confirm that, in accordance with the Company’s disciplinary procedure, we require you to attend a disciplinary hearing here at [ ] am/pm on [ ]. The meeting will be conducted by me, and I will be accompanied by an observer/note taker.

The purpose of the disciplinary hearing will be to discuss the following complaints that have been made against you: [ full details of complaints ]. I should warn you that these are very serious allegations which, if proved, may result in your dismissal.

You have the right to bring a current fellow worker or a Trade Union representative to the hearing, to assist you in presenting your case. You will be given every opportunity to state your case and answer the complaints made against you.

Enclosed is a copy of the investigation report and copies of the statements of [witnesses]. If you disagree with the content of this and wish to add to or amend it please inform me immediately.

If you have any witnesses relating to the incident whom you wish to attend the hearing, please inform me immediately.

Please confirm your attendance and whether you will be bringing a representative to the hearing, by telephoning me and informing me of any queries or questions relating to the disciplinary hearing you may have."
 

When an incident of misconduct occurs at work, it is a natural inclination to discipline the employee there and then. The more serious the incident, the stronger that inclination.

However, it is vital to follow a proper procedure to avoid unnecessary claims. All employers should have adopted a disciplinary procedure.

When an incident occurs, the first step is to investigate. If necessary, the employee can be suspended from work whilst this is carried out.

Next, if the investigation uncovers wrongdoing, the employee should be given full written details of the alleged misconduct and the basis for the charges against him. The specimen letter above is a type of letter often used.

Then the disciplinary hearing should take place.

Finally, the employee should be given a right to an appeal hearing before a more senior manager than the one chairing the disciplinary hearing.

The above in by no means a complete or comprehensive guide, but it is a reminder of some of the key steps that are required, no matter how gross the misconduct.