Team moves: minimising the fallout when a partner leaves under a cloud
A partner announcing their intention to leave a partnership is difficult even if the relationship is amicable. But it can be especially challenging if that partner leaves under a cloud. And it can be disastrous if they succeed in taking their team or their clients with them.
For the partners left on the defence we consider:
- The partnership agreement: walking the tightrope of legal issues
- Team moves: practical responses
- Social media: spotting solicitation
- TUPE: how to turn a team move to your advantage
The partnership agreement: walking the tightrope of legal issues
Whether you have an LLP or traditional partnership, what can and cannot be done when a partner leaves will be governed first and foremost by the terms of the partnership agreement.
Leaving a partnership to join a competitor or set up on your own risks exposure to breach of fiduciary duties. For partners in particular these include:
- Duties of confidentiality, including misuse of business plans.
- Duty of good faith, including promoting the partnership’s interests above their own.
- Duty of disclosure, including a duty to bring to the firm’s attention any information that may adversely affect it (such as your own breach or knowledge of a potential team move).
A common solution for firms with departing partners is to implement garden leave. The starting point will be any provisions in the partnership agreement granting the partners power to put a partner on garden leave. If there is such an express term this should include any necessary restrictions, such as minimising contact with clients.
Can you enforce really long periods in the garden?
Whilst the court is willing to uphold express terms, there is a risk that a court may determine the duration of a garden leave provision to be too onerous on the leaving partner. So you may find that excessive garden leave periods are not fully enforced.
What if there is no garden leave clause?
General management powers may be sufficient. Where there has been a relationship breakdown the partners could use their management powers to assign particular types and places of work to particular partners in the best interests of the firm.
However, the court may be unwilling to stretch such powers to include the power to place a partner on garden leave. This should only be a last resort.
Team moves: practical responses
A team move is where two or more people leave a partnership to join a competitor or set up on their own. Typically they leave together but departure may be staggered. There are a number of approaches that the partnership can take depending on how far along the team is in their move to a competitor.
All partnerships need to be vigilant to spot a potential team move at an early stage. Have you noticed unscheduled meetings? Are there co-ordinated absences? Is there a chain of emails that doesn’t relate to current projects?
As soon as you are aware of a potential team move you should hold individual interviews with each member of the team. This will narrow down who is involved, who is the recruiting sergeant or ringleader and whether there is an incentive you can offer to persuade team members to stay. Stabilising the partnership by promoting some team members may be enough to stem the move.
If necessary, consider accessing emails on partnership email accounts, search orders and importantly, look for the outsider – who wasn’t asked to move? They may be able to provide you with the real picture.
What about waiting room clauses?
These clauses limit the number of people to leave from one department within a certain space of time. Once the limit has been reached in that calendar year, any further partners wishing to leave have to wait their turn. Such anti-team move clauses can be enforceable if well-drafted.
Once you are certain there is a team move in the works there are a number of remedies you can seek to protect the partnership:
- Springboard injunction: preventing a former staff member using their knowledge of your business to their advantage.
- Claim for damages: this route has the disadvantage of potentially dragging clients into the dispute.
There are also a number of possible economic claims, such as knowingly inducing a breach of contract, conspiracy or dishonest assistance in breach of a fiduciary duty. These could be claimed against the predator firm, a financial backer, ex-colleagues and/or recruitment consultants. Which will be the most effective approach will depend on your ultimate goal in fighting the team move.
Social media: spotting solicitation
Usual T&Cs of social media sites state that the account belongs to the individual, unless the partnership agreement expressly states to the contrary. With the use of social media for business on the rise, how do you ensure your firm is protected?
What counts as solicitation?
There generally needs to be a positive invitation – to show solicitation there needs to be a connection between the new role and contact details.
“I am excited to be starting work at Silver Lining LLP where I will continue to work hard to serve all my project development clients. If you would like to contact me, please do so at email@example.com” – this would be a clear case of solicitation.
“I have left Grey Sky LLP and joined Silver Lining LLP” – in contrast to the post above, this would almost certainly not be solicitation.
“I am thrilled to announce that, along with the rest of the key movers and shakers from Grey Sky LLP’s project development team, I am joining Silver Lining LLP: www.silverliningllp.com” – although this is a derogatory statement is it necessarily a disguised invitation? If they are the key player, clients are more likely to follow them to a competitor.
Possible protective clauses
One solution would be to provide in the partnership agreement that all social media contacts belong to the firm and insist that former partners ‘unlink’/’defriend’ any of the firm’s clients on departure.
However, this may not be achievable in practice. An alternative may be to include terms requiring partners to update their social media on behalf of the firm or agreeing joint announcements on exiting the partnership.
TUPE: how to turn a team move to your advantage
If a team move is in the later stages and the departing team has been working in a particular and distinct part of its business, it may be possible to agree a transfer of that part of the business to the new firm by way of a sale.
If TUPE applies, any employees employed in that team (including ones you don’t want to keep) immediately before the transfer could be automatically transferred with the rest of the team. This approach also avoids the cost of redundancy. For the competitor, it means that senior team members avoid their lengthy notice periods and onerous restrictive covenants.