In a team move, one or more employees leave an employer to join a competitor or set up a new enterprise in the same field. For new employers, lateral hires of multiple individuals already working together is an immediate way to boost revenue and secure market share. Multiple lateral hires of experienced employees can also rapidly increase an employer’s core capabilities and add strength in the targeted market. In direct contrast, the impact on the old employer can be commercially significant and can weaken its position in the market. These considerations are important in the current economic climate, which is likely to see increased prevalence of team moves in Oman and across the GCC.
A typical team move scenario involves a small team at different levels of seniority, for example in a company in the financial services sector selling a product or services to an established customer base. The targeted team members will have worked together closely for a number of years, and the most senior person in the team will invariably have some influence over the more junior members of the team. Typically, one person will resign first, usually the most senior person on the team. Other team members will announce their staggered departures shortly afterwards.
Team moves nearly always involve breaches by employees of the terms of their employment. In any team move, there is by necessity a degree of contact and planning that takes place between the new company and the targeted employees. In this process, it is common that a certain amount of confidential information is disclosed to the potential new employer either voluntarily or at the request of the new employer. It is important therefore for the new employer to understand any post-termination restrictions in the existing employment contracts of the targeted employees. This situation alone raises key legal issues for the new employer, the old company and the employees.
Applicable Omani laws
In Oman, most employment contracts contain a clause pertaining to the treatment of confidential information and its disclosure. In addition, employment agreements governed by Omani law invariably include a restrictive covenant upon the employee to protect the goodwill, trade secrets and market share of the employer. Such clauses are commonly referred to as non-compete clauses. The Omani Civil Transactions Law, issued under Sultani Decree 29/2013, provides that such clauses are valid in order to protect the legitimate interests of the employer. More specifically, “… if an employee has knowledge of secrets of his employer in terms of how the entity conducts business or is familiar with the employer’s clients, then the employment contract may contain a clause to prevent the employee from (i) gaining employment with a competitor of the employer or (ii) participating in competitive work.” Under the Omani Civil Code (Article 661), in order to be enforceable all non-compete clauses must be reasonable in terms of duration, type of work and applicable territory.
Under Article 27 of the Oman Labour Law, employees are obliged to maintain the secrets of the employer. Additionally, under Article 40 an employer may dismiss an employee without notice and without payment of the end of service gratuity if inter alia he discloses confidential information about the employer to a third party. Such disclosures of confidential information or trade secrets are considered to be gross violations of the labour law which justify the remedy of instant dismissal without end of service or other payments ordinarily due to the employee.
Team moves in Oman must be viewed in the context of the existing two-year expatriate visa ban. Put simply, the ban imposed by Sultani Decree 16/1995 restricts expatriates from seeking employment with a new employer in Oman for a period of two years after the termination of their current employment. The expatriate is however eligible to join another company if he can obtain a no objection certificate (NOC) from his current employer. The ban and NOC system currently in place has put a pall on team moves in Oman, but not entirely. There have been recent reports in the Omani press and statements by The Royal Oman Police and other Government officials indicating that the ban and NOC system may be abolished soon. If so, management in both targeted and hiring companies in Oman should be aware of the legal constraints, risks and remedies associated with multiple lateral hires.
Remedies following team moves
Along with most team moves, there will be a threatened or actual application to the court for damages resulting from a breach of contract. The resulting litigation may prevent employees from taking advantage of any unfair head-start obtained through their unlawful activity. Seeking a ‘springboard injunction’ as a short-term remedy in any impending team move is a useful litigation tool to prevent the employees from departing for the new company. The principles behind the ‘springboard injunction’ were summarised in the QBE v. Dymoke case (QBE Management Services (Ltd) v Dymoke & Ros [2012] EWHC 80 (QB)) as follows:
- “…where a person has obtained a ‘head start’ as a result of unlawful acts, the Court has the power to grant an injunction which restrains the wrongdoer, so as to deprive him of the fruits of his unlawful acts. This is often known as ‘springboard’ relief.”
In the Dubai International Financial Centre (DIFC) and in the courts of England and Wales, such an interim remedy would be possible. The Omani courts are, however, unlikely to entertain any injunctive relief applications in such a scenario. Instead, the targeted company would have to bring a claim for breach of contract or use other applicable laws and would need to prove financial loss caused by the actions of the departing employees. In this situation, employers often assert that there has been unlawful collusion between team members and that losses are greater because the departing team is irreplaceable as a whole. In any team move, however, it will be difficult to prove which financial losses are directly caused by breaches of contract. More often than not, these cases are resolved when the new company gives suitable undertakings, for example by agreeing to place the team in an area of the business that does not compete with the old employer for an agreed period of time, or agreeing that key personnel will not work for certain clients.
Conclusion
Whether you are considering hiring a team from a competitor or are faced with losing one, management on either side can consider several steps. The new company can consider (i) undertaking a review of all existing employment agreements to better understand the duties and obligations on both sides; (ii) engaging a recruitment company to ensure an arm’s-length hiring process; (iii) refusing to request or receive any trade secrets or confidential information from the lateral employee; (iv) avoiding any misconduct, evidence of which could be used in any subsequent court proceedings; and (v) approaching targeted employees separately and not in groups. By contrast, some considerations for the old company include (i) undertaking an immediate IT investigation to determine if any communications between the employees and the new employer remain on the company server; (ii) not disclosing details about other persons approached during the investigation; (iii) understanding that time is of the essence, especially if litigation is being considered; (iv) interviewing the concerned employees separately; and (v) trying to understand the reasons for departure to determine the possibility of persuading any key employees to remain. Undertaking a team move successfully without triggering breaches of contract is difficult for a poaching employer to accomplish. From a legal and practical perspective, a team move raises issues that tend to be more complicated than the departure of a single employee. Warning signals are often visible to the old employer, but are mostly ignored until it is too late. In any subsequent litigation, carefully planned strategies are key to improving the positions of both a poaching employer and targeted employers faced with a departing team.
