Out-Law News 3 min. read
25 Aug 2008, 3:13 pm
In one day earlier this year, 52 employees told UBS Wealth Management that they were leaving for Vestra Wealth, a rival started up by former UBS senior executive David Scott. A further 23 staff announced they were joining the new company in the following weeks.
Scott was not in direct breach of non-compete conditions of his contract with UBS because the restrictive covenants in that contract had run out.
UBS sued Vestra, though, claiming that the ex-employees had coordinated defections, acting in secret and in violation of their duties to their employers.
The court granted UBS an injunction which would restrict the activities of Vestra until the end of a full trial in October. That order restricted Vestra employees from doing business with any of their former clients at UBS except those who had ended contracts with UBS in writing before the court action was taken; prevented it from trying to persuade other UBS clients to come to it; and stopped it from encouraging any more UBS employees from leaving UBS to join it.
UBS and Vestra have now reached a settlement over the whole issue, according to The Times newspaper. Neither company was available for comment on the settlement, but a spokesperson for Vestra told The Times that "following an interim hearing which took place in the High Court pending full trial in October, we are pleased to say that a settlement has now been reached". The terms of the settlement were not disclosed.
The High Court's ruling, though, does clarify that courts will award so-called 'springboard injunctions' when companies are formed or joined by large numbers of breakaway employees even when the issue at stake is not merely the use of confidential information.
It was a springboard injunction that High Court judge Mr Justice Openshaw awarded against Vestra in that initial hearing.
Springboard injunctions are designed to minimise the advantage a breakaway company can gain from the use of confidential information taken from the initial employer. Such an injunction can restrain people from using information they took from their former employers even if that information no longer counts as confidential.
In the UBS and Vestra case, though, the judge said that the scope of springboard injunctions should not be limited only to the use of confidential information.
"In my judgment, springboard relief is not confined to cases where former employees threaten to abuse confidential information acquired during the currency of their employment. It is available to prevent any future or further serious economic loss to a previous employer caused by former staff members taking an unfair advantage, an 'unfair start', of any serious breaches of their contract of employment (or if they are acting in concert with others, of any breach by any of those others)," said Mr Justice Openshaw.
"That unfair advantage must still exist at the time that the injunction is sought, and it must be shown that it would continue unless restrained," he said in his ruling. "I accept that injunctions are to protect against and to prevent future and further losses and must not be used merely to punish past breaches of contract."
Though the preliminary hearing was not designed to settle all the facts of the case because a full trial was pending, the judge did hear some evidence on the degree to which there was collusion between UBS employees on their leaving of the company.
Employees have duties of loyalty and fidelity to their employers, and encouraging others to defect to another firm en masse and discussing such a move in secret could be an unlawful breach of those duties.
Vestra claimed that Scott co-ordinated the move of all the employees without any activity or collusion taking place between the employees of UBS who were to move. If only he had co-ordinated the actions then no unlawful activity would have taken place.
The court was able to examine transcripts of phone calls, though, because UBS routinely records all its calls. Mr Justice Openshaw said that Vestra's account of events was "inherently unlikely".
"It seems to me to be inherently unlikely that whole departments should leave UBS en masse and join Vestra en masse without extensive discussion between staff beforehand," he wrote in his ruling. "It is already clear that there are many extracts [from phone call transcripts] which may lead to the inference being drawn that the defections were not just organised or arranged by Mr. Scott personally."
"After his restrictive covenants had expired, he was of course free to act himself; but he was not free to assist and encourage the staff of UBS to act collectively to sabotage UBS in breach of their own duties of loyalty and fidelity," said the ruling.
