Introduction
If a senior employee abuses his power and uses his senior position to exert his influence over his subordinate or junior employees to foment their resignations to join a new employer (often the employer’s competitor) or misuses the employer’s confidential information that only senior employees have access to, and uses such information to negotiate and secure his and his team members new employment with the employer’s competitors, etc. this can seriously harm the employer’s business interests. These are classic “springboard” advantages that could not have been achieved but for the unlawful conduct of the senior employee when he is still under the employ of the employer. They are referred to as “springboard” advantages as they give the wrongdoing employee an unlawful advantage or unfair competitive head-start. Very often, the employer would not realise these unlawful conducts until after the senior employee and his team have terminated their employment and already joined the competitor.
A “springboard” injunction is a type of injunction designed to remove or limit the unlawful advantage or unfair competitive head-start that a former employee has gained through such unlawful activities. It ensures the wrongdoer does not get an unfair start and to restore a level playing field between the wrongdoers (including the wrongdoing employees and, if appropriate, other third parties such as the new employer or competitor) and the employer.
Whilst historically the springboard doctrine was developed from cases relating to the misuse of confidential information, in QBE Management Services (UK) Ltd v Dymoke & Others [2012] IRLR 458, the leading authority on springboard injunctions, the English High Court confirms that the grounds of springboard injunctions have been extended to breaches of contractual duties, fiduciary duties, and the duty of fidelity. The QBE case illustrates how a springboard injunction is a powerful protective mechanism for employers against team move. The principles set out in the QBE case have been applied in Hong Kong courts.
The QBE case
The 1st to 3rd Defendants (respectively, “D1”, “D2”, and “D3”) were three key employees of QBE Management Services (UK) Limited (“QBE”) in the British Marine part of QBE’s European Operations. They resigned in April 2011 to commence a new competing business venture with the 4th Defendant, PRO Insurance Solutions Limited (“PRO”), a financial backer. After D1 to D3’s resignations, eight other employees resigned from QBE to join the new business venture being set up by the defendants.
QBE successfully obtained (1) a 12-month springboard injunction against the defendants from starting the new venture and (2) damages of over £300,000 to cover QBE’s staff retention costs in relation to pay rises and retention bonuses for current staff, recruitment costs to fill vacant positions; and costs of employing a temporary claims adjuster.
What must be established in order to obtain a springboard injunction?
Broadly, an applicant employer will need to satisfy the court of the following to obtain a springboard injunction:
- there has been unlawful conduct by the former employee;
- the former employee has gained an unfair competitive advantage over the employer as a result of that unlawful conduct;
- the nature and period of the unfair competitive advantage are more than “ephemeral” or “short-term”;
- the unfair competitive advantage exists at the date the springboard injunction is sought and will continue unless the springboard injunction is granted; and
- a springboard injunction would be a proportionate and appropriate remedy.
The court will not grant a springboard injunction to the applicant employer in cases where a monetary award would provide an adequate remedy. However, in many team move scenarios, the employer may not be able to prove what financial losses have been caused by the breaches of contract on the part of the former employee. Therefore, a springboard injunction may provide a useful remedy.
The English High Court’s decision
The English High Court considered that there could not be a clearer case for springboard injunctions than the QBE case in light of the various unlawful activities by D1 to D3 acting in breaches of their duties of fidelity, duties of confidentiality, fiduciary duties and/or other contractual duties owed to QBE, including the following:
- broad-scale solicitation of QBE employees by D1 to D3 during their employment, initially of each other, and then of other key employees, to join the new venture;
- substantial abuse and misuse of materials and confidential information with a view to obtaining financial backing for the new venture; and
- significant solicitation of customers for the benefit of the new venture.
The judge commented that “[t]he conduct hereof [D1 to D3] went way beyond what could properly or rationally be described as ‘preparatory’. It was not simply taking time off individually to attend the odd interviews with new prospective employers, or individually exploring how to set up a new business and discussing with financial backers. As stated above, it was concerted, covert action by them over many months to further a detailed plan, conceived jointly, to ‘rip the heart’ out of their own employer’s business by setting up a new entity outside, comprising a virtual ‘mirror business’ in direct competition with their employer, using their own employer’s key people and materials,…” (§257 of the judgment)
The judge considered that D1 to D3 obtained various classic springboard advantages, including:
- using their senior positions to influence subordinate employees with a view to encouraging their resignations from QBE;
- using confidential information to which they had access by reason of their positions for the new venture;
- negotiating with financial backers from a position where they had access to information and materials which were required to secure their support; and
- securing the support of some of QBE’s existing customers for the new venture.
It was held that such classic springboard advantages could not have been achieved but for the unlawful activities of D1 to D3 whilst still employed by QBE, and could not have been realised until the termination of their employments and expiry of the restrictive covenants in their employment contracts.
On the other hand, PRO, the 4th Defendant, was held to be liable for inducing numerous breaches of contract by D1 to D3. For instance, PRO agreed to start the new venture with them knowing that they intended to bring with them QBE’s employees and customers, and knew that the process of setting up the new venture had involved copying many documents belonging to QBE.
Takeaway Points
In the QBE case, a springboard injunction preventing any launch or preparatory activity of the new venture was granted until 28 April 2012. Given that D2 and D3 would otherwise have been free under their employment contracts to start work at the end of October 2011, one can see that a springboard injunction is a powerful remedy.
Employers may incorporate express contractual covenants in their employment contracts to protect their confidential information and to regulate employees’ conducts both during and after the termination of employment. If an employee breaches such contractual covenants, an employer may seek a springboard injunction against the employee. In considering whether a springboard injunction is available to them, employers should consider whether there is sufficient evidence demonstrating that the departing employees obtain an unfair head start by reason of their unlawful activities, as well as evidence of actions that the former employees have taken that amount to a breach of their duties and the impact that these actions have had or may have on their business.
In addition, employers may consider if there is sufficient evidence to bring claims against third parties (for example, the new employers), to show that they have actual knowledge that the former employees acted in breach of their employment contracts. If so, employers may apply for injunction and seek damages against third parties.
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This article was originally published on ONC Lawyers.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.