LEGAL
Capita v Darch & Others ... when teams leave to start a new business
By Sean McDonough , partner at Mogers Drewett , specialist in the employment and HR team .
Many successful new businesses have been started by teams of people who met as employees of other larger businesses . It is not unusual for a group of employees to come together with an embryonic business idea founded on their combined knowledge , skills and experience , and to leave their employer en masse to turn that idea into a viable business .
However , for both the people involved in starting the new business , and their previous employers , such a move is rarely free of acrimony , and in some cases the move can result in costly legal action when the previous employer takes umbrage or suspects there has been improper activity on the part of the employees in their preparation to leave whilst they remained employed .
The recent case of Capita v Darch & Others is a case in point . A former director ( not constrained by a noncompete / non-solicitation clause ) laid the preparations to establish a new business and a number of existing employees chose to join him after working their notice . While the new business was not a direct competitor , the management at Capita eventually became concerned about their activities and suspected the group had misused confidential information in the formation of the new business and had been doing things during their employment they should not have been doing .
Capita ’ s reaction was extremely aggressive and the resulting ‘ David versus Goliath ’ court case has attracted media attention .
Capita issued an emergency application for injunctive relief in the High Court , pending the hearing of its substantive claim for damages . It issued against ten defendants in total .
The court however ruled in favour of those defendants who opposed the application . The court took a very pragmatic and public policy driven approach to the application and essentially held that Capita was in no position to restrict these ordinary working people simply because they suspected wrongdoing they could not prove . As the judge concluded “ clouds of suspicion ( albeit that they may transpire to have substance at trial ) are not the same as cogent evidence of wrongdoing sufficient to warrant the particular injunctions that I have been asked to grant .” Capita ’ s reward was having to pay the majority of the defendants ’ costs .
During the case it emerged that Capita had poorly drafted or incomplete contracts of employment in place with a number of the Defendants arising from its historic acquisition of other businesses . This should serve as a warning to all businesses to take care with important documents such as contracts of employment that there is adequate protection for the business ’ commercial interests . There can be a significant risk to a business if it has not taken appropriate care over the documents it has in place .
All businesses should make sure they have the adequate protection by way of restrictive covenants in place , and that they are able to track employees ’ moves and behaviour in the event they need to evidence wrongdoing . They should also have a clear understanding of what company property is , and whether it is protectable .
The case of Capita v Darch & Others also serves as an illustration that ; from a public policy point of view , courts appear to be very much on the side of freedom of movement and protecting individuals ’ rights to work and compete where there are no clear contractual restrictions in place .
However , the case should also serve as a warning to anyone who may be considering leaving employment to start a business in the same field as their employer . Most large employers will have very deep pockets with which to launch expensive legal action when teams of employees leave , so the employees need to ensure they do nothing to leave themselves vulnerable . The potential outcome could be an injunction and claim for damages and legal
costs that can be very damaging and could undermine your business ambitions before they have started .
If you are considering leaving your employer to start a business you should take advice at an early stage . Make sure you don ’ t misuse confidential information , and don ’ t breach the terms of your employment contract . You can certainly take steps to prepare if you are thinking of starting your own business , but you need to be careful about when and how you do it .
Of course , from an employer point of view , you should remember that the initial ambition to leave and start a new business is often borne out of frustration employees feel , and a sense they are not valued or rewarded . If you have talented staff on which your business relies , it is always better to support their careers and reward them so they don ’ t feel they need to leave .
For more info : www . md-solicitors . co . uk
@ mogersdrewett
Have you discovered the
CONFER
CONFERENCING & MEETING SPACES
at the NSBRC
3 Excellent location
( Just off Junction 16 of M4 with plenty of FREE parking )
3 Irresistible customer service
3 Unique & inspiring venue with a real ‘ WOW ’ factor
3 Flexible meeting spaces with latest media equipment
3 FREE Wi-Fi Conferencing & Business Services
Contact us : 01793 847400 ( Option 4 ) | conferencing @ nsbrc . co . uk
16 THE BUSINESS EXCHANGE 2017