The recent decision of the High Court in the case of Fahim Imam Saddeque-v-BlueBay Asset Management (Services) Limited illustrates the danger and difficulties faced by a senior employee when considering a departure to join a competing organisation.
Background
The claimant was a senior employee of BlueBay and was highly remunerated. Part of his remuneration consisted of the granting of shares under the terms of Bonus Plans (“the Bonus Shares”). By the summer of 2011 the claimant had been granted Bonus Shares which (it was estimated) would have been worth approximately £1.7 million. They were due to vest in January and March 2012.
His contract of employment contained “Good Leaver” and “Bad Leaver” provisions. In the event that the claimant departed as a Good Leaver he would, all other things being equal, have departed on the basis that he would remain entitled to his Bonus Shares. However, if he departed on the basis that he was a Bad Leaver, then he would forfeit that entitlement.
The claimant decided that he wanted to leave Bluebay as a result of a meeting with management at which certain complaints were raised against him and at which he was informed about the promotion of a colleague in preference to him. He realised that if he had resigned at that point, he would have been regarded as a Bad Leaver and would have forfeited his Bonus Shares. Despite this, the claimant entered into discussions with and agreed to join a competitor.
The company was nonetheless aware that the claimant wanted to leave and it was prepared to allow him to do so on the basis of a compromise agreement which was swiftly concluded. The compromise agreement required the claimant to conduct a handover and then remain on garden leave until the end of what would have been his period of notice. Moreover, the company agreed, in the circumstances, that it was going to allow the claimant to be treated as a Good Leaver for the purposes of the vesting of the Bonus Shares provided that he complied with the terms of the compromise agreement and his employment contract.
The claimant did not start working for the competitor until after the expiry of his garden leave. However whilst still working out his garden leave he assisted the competitor to set up its business and to recruit a more junior BlueBay employee to join it.
The Court’s Decision
The court found that a number of aspects of the claimant’s conduct put him in repudiatory breach of the terms of his contract of employment and certain terms of his compromise agreement. The claimant had been required to sign a reaffirmation letter at the end of his garden leave confirming that there were no material facts concerning the performance of his duties to BlueBay and/or breaches of material terms of his contract of employment which he ought to have disclosed. He had signed this making no disclosures. The court found that he was in breach of the terms of that letter as well.
As a result of these breaches the claimant was unable to fulfil the provisions of that clause of the compromise agreement which entitled him to be regarded as a Good Leaver for the purposes of the vesting of his Bonus Shares. The court found that he was therefore not entitled to them.
The claimant argued that this was such a catastrophic consequence of his breach of these agreements that it should be regarded as a penalty and therefore unenforceable. The court rejected this argument.
Summary
This case is a warning to those employees who wish to leave their current employer and set up in competition elsewhere that they need to examine the contracts which may contain restrictions upon them doing so very carefully. These will typically include:
- Their contract of employment including any restrictive covenants contained in it.
- The compromise agreement (if any) by which they have agreed their departure.
- Any restrictive covenants contained in a shareholders agreement.
In many cases an employee departing to set up a rival company will not have the benefit (as some would see it) of a compromise agreement and will be leaving without the blessing of the company. In those circumstances their departure may well be seen as a hostile move and be treated accordingly. This case, however, is a warning to those who have negotiated the terms of their departure and have had this recorded in a compromise agreement that they should not assume that their problems are over!