How to reduce the risks posed by hostile or disloyal employees, including payment adjustments and enforcement of post-termination restraints

1. Business Protection and The
Hostile Employee...
Gareth Kervin & Anne Mannix
24 October 2012
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2. Kervin & Barnes
 Our lawyers have City backgrounds (Simmons and
Simmons, DLA, Deutsche Bank and BGC Partners/Cantor
Fitzgerald)
 Listed in both Legal 500 and Chambers and Partners, two of
the legal profession’s most prestigious directories
 Clients include traditional City employers as well as
household names such as ebookers, Danone and P&O
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3. Employees: Assets v Risk to the business
 “Exceeds Expectations”  Poor performance
 Reflects Key Values  Misconduct
 Loyalty  Competition
Pre-emptive drafting
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4. Poor Performance: Employment Contract
 Accurate list of duties/role description (non-contractual?)
 Satisfactory performance clause?
 Probationary period (include option for employer to extend)
 Reserve right to change duties during notice/garden leave
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5. Poor Performance: Employment Policies
 Development plans: (PMPs, PIPs)
 Appraise managers on their ability to carry out appraisals/PMPs
 Specific capability procedures (see Acas Code)
 Avoid policies with unnecessary administrative burden
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6. Misconduct: Employment Contract/Handbook
 non-contractual disciplinary policy
 contractual email/phone/internet use policy
 Express obligation to report own wrong-doing?
 Social networking and social media clauses: limit comments on company,
use of work email address, contacts- who do they belong to?
 Gross misconduct: give relevant examples, but not exhaustive list
 Surveillance –has employer reserved the right?
 CCTV/ recorded phone lines/ monitoring emails
 Return of all Company property
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7. Incentives & Sanctions (performance & conduct)
 Remuneration schemes consist of fixed and variable pay with
deferred elements
 FSA Remuneration Code: effective risk management, reduce
excessive rewards for failure
 Contractual provisions for pay adjustments:
 Clawbacks
 Bonus/ Deferred Remuneration
 Exclusion Clauses
 PILON clause
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8. Incentives and Sanctions - Exclusions
 Exclusion clauses
 Exclude bonus on termination: valid to provide that employee must be
employed and not under notice (Locke v Candy & Candy Ltd [2010]
CA
 Micklefield clause: generally excludes company's contractual liability
for loss of employee's rights under share plan caused by any
termination of employment (Micklefield v SAC Technology Ltd [1991])
 Exclude claims arising from employer’s exercise of
discretion: clear well drafted ones are enforceable
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9. Incentives and Sanctions – pay in lieu of notice
 PILON
 Contractually agree what payments are included: limit to basic salary
for notice period (or salary plus benefits)
 include repayment if employee has committed a prior (fundamental)
breach
 Beware: Cavenagh v William Evans Ltd [2012] CA
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10. Incentives and Sanctions: Atypical post-
termination restrictions?
 Repayment, non-vesting & forfeiture provisions: are they
atypical post-termination restrictions through the back door?
 Mallone v BPB Industries Limited [2002] CA leaver should not lose
vested options unless gross misconduct
 Foreign jurisdiction issues
 Rome I Art. 21 will not oust English determination of unenforceability
under restraint of trade doctrine
 Duarte v Black and Decker [2007] (QB)
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11. Competition: Employment Contract provisions
 Requirement to notify of job offers
 Requirement to provide copy of contract to potential new
employer
 Appropriate period of notice whether from employee or employer
 Garden leave clause
 Appropriate post-termination restrictions
 Pat Systems v Neilly [2012]
 High Court enforceability of restrictions assessed as at date they were entered into
 FW Farnsworth Ltd v Lacy & Others [2012]
 High Court held employee bound by restrictive covenants in new unsigned contract
 IP protection/database rights
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12. Competition: Post-termination Restrictions
 Prima facie unenforceable
 Legitimate business interests – workforce, trade connections,
confidential information
 Non-solicitation, non-dealing, non-compete clauses
 Restrictions in share option schemes, LTIPS
 Email contacts at work mingled personal and work contacts: –
who owns the contacts? Hays Specialist Recruitment v Ions
[2008] High Court pre-action disclosure against ex-employee
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13. Compromise Agreement?
 Use where restrictions in the employment contract are
insufficient
 If there has been a fundamental breach by employer
 Consider fresh, express restrictions in the settlement
agreement
 additional and separate consideration
 consideration is taxable (s 225 ITEPA 2003)
 sign as a deed
 WARNING: entire agreement clauses
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14. Compromise Agreement: Other protection clauses
in Compromise Agreement
 Employee warranties
 No fundamental (or material) breach of contract by employee
 Employee has returned all property/confidential information
 No derogatory statements
 Confidentiality as to terms
 No offer or expectation of offer of income
 Repayment clause if employee breaches
 Social networking and social media- agree to restrict
employee’s comments about employer & agree who owns
contacts
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15. Enterprise and Regulatory Reform bill and
possible impact
 Consultation re changes to unfair dismissal legislation
 Code of principles, model settlement and draft letters
 Option of early termination without procedures where no
dispute (currently not “without prejudice”)
 Employee would not be obliged to accept any offer
 Consider termination in context of existing Good Leaver/
Bad Leaver provisions
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16. Remedies
 Take immediate legal advice
 Damages in covenant claims and account of profits
 If damages are not an adequate remedy:
 Interim injunctions to enforce express terms
 Springboard injunctions
 Delivery up
 Freezing orders
 Search orders – pre-issue of claim
 Permanent injunctions
 Libel or defamation issues
 Employer may have damages claim for breach of fiduciary duty
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17. Thank you
Contact us:
 Gareth Kervin
gkervin@kervinandbarnes.com
 Anne Mannix
amannix@kervinandbarnes.com
© Kervin & Barnes Solicitors | 020 3178 5360