Brokers should learn caution from Tullett case

TULLETT Prebon’s recent victory over BGC in the High Court was hailed by Tullett as a triumph for the “framework of law” over disrespect for contractual obligations. But is the decision really that black and white? And does it indicate a greater willingness by the courts to intervene to protect employers when employees depart for new, and competitive, pastures?

The judge in the Tullett case found that BGC had conspired with former Tullett senior employees to poach teams of brokers and induce them to breach their contracts. Tullett employees were targeted and offered more than £40m in signing-on bonuses and fixed term contracts to move to BGC. However, specific features of the broking world may mean that the general lessons to be learned from this case are limited. For example, the common use of contracts entered into during existing fixed-term contracts, the manufacture of constructive dismissal claims to release employees early from fixed-term contracts and nullify post-termination restrictions, and indemnities from new employers against financial loss arising out of moves, all reflect the broking world’s objective of obtaining the competitive advantage over rivals, but may not apply in other sectors.

The Tullett case will not stop businesses poaching their competitors’ staff but it is a reminder of the potential risks involved and how to get it wrong. When hiring teams, organisations should consider using headhunters. Cautious new employers may ask for copies of employment contracts, so that they can evaluate and quantify potential liabilities; others may take the view that this may expose them to claims of inducing breach of contract and leave it to employees to offer these up. Care should be taken when communicating, as emails, text and instant messaging are disclosable in litigation. The timely “loss” of mobiles and Blackberries – eight in one year in the Tullett case – will not wash: the judge in that case found that this was a deliberate ploy.

Employers faced with teams departing for a competitor consider including similar provisions to those common in brokers’ employment contracts in their own contracts. Initial fixed-terms followed by lengthy notice periods will ensure that employees are contractually bound for a significant period. Bonus claw-backs may also act as an incentive to stay. Garden leave clauses allow employers to take employees who have given notice out of the market, and be less of a threat when move to their new employer. Properly drafted restrictive covenants can prevent departing employees from working for competitors for up to another year. Contracts can also require employees to inform their employers if they receive an offer from competitors, allowing employers to entice them to stay.

Broking life may be nasty, brutish and short, but it is not poor. The move to more deferred compensation appears to have had little impact among brokers. The Tullett case illustrates the lack of employee loyalty and the frequent employee moves in the broking world. Nevertheless, the scale of the poaching in this case is itself worthy of note. However, given the somewhat extreme facts of this case, it cannot really be said to be an example of the courts upholding employment contracts more stringently, for if they hadn’t intervened in this case, when would they?