Last week’s settlement between Towergate and Bob Beckett’s company is just one of a number of high profile disputes over staff defections. Natasha Lavattiata reports
With the addition of legal costs, the total cost for Beckett and his team of 15 former Towergate employees could be close to £1m.
Recent months have seen a flurry of high-profile activity in this area, with companies looking to enforce or obtain damages for alleged breaches of non-solicitation covenants by former employers.
Other recent examples have included Aon’s £9.5m settlement with Benfield, after the defection of the latter’s global facultative solutions team last year.
There was also Farr Insurance Brokers’ legal battle with its former managing director over a non-compete clause.
The answer to why companies are so adamant to enforce these covenants is clear – they want to protect their assets.
The broking business is based on relationships with clients. When they are used to dealing with one account holder at a company, they are easily induced to follow when that person leaves.
Lucas Fettes managing director Robin Lucas says there has been an increase in these types of cases, which he blames on increased consolidation.
“For about two years now, the increase in consolidation taking place means that a lot of people find themselves unsatisfied because of changes which happen within an organisation,” he says.
Others also point to the soft market as another factor driving this activity.
In a climate of competitive pricing, poaching teams and senior individuals with good contacts can be an effective strategy to grow the business.
Naomi Feinstein, employment partner at Lovells says there could be a link between a soft market and a rise in team poaching, leading to restrictive covenants being put in the limelight.
“It's all in the drafting. A comma here or a full stop there can make all the difference
Naomi Feinstein, Lovells
She says: “When business is buoyant companies do not have the need to poach teams.”
But Feinstein has not noticed an increase in cases over recent months. “Over the past 10 to 15 years there have always been cases in this area. This is an area which has always been ripe for litigation,” she says.
In fact, Feinstein says that as time has progressed, companies have improved the drafting of restrictive covenants, meaning many cases do not reach court and are settled before.
The four covenants available to an employer include non-solicitation of employees, non-solicitation of clients, non-dealing and non-competition.
Non-competition clauses are the most restrictive of all because they prevent the employee working for a competitor for a period of time.
Companies are learning which wordings within covenants are enforceable and which wordings “fall flat on their face”, says Feinstein.
“It’s all in the drafting. A comma here or a full stop there can make all the difference,” Feinstein warns.
She concludes: “Sometimes you could be on the winning side and sometimes you could be on the losing side. But it’s important to take action when it happens.”
In a prime example of Feinstein’s final point, we return to Bob Beckett. Despite coming out on the losing side in the battle with Towergate, the broker baron boasted a legal win in a similar case only a week earlier.
Beckett won a breach of covenant case in the Court of Appeal against a former director of Beckett Financial Services who had left
to set up a similar company with a former business partner of his.
