Can you imagine a scenario wherein a senior personnel from your company has left to join your arch competitor? The danger of course is that he or she is armed with your confidential company information such as customer database, supplier directory, financials and so on. The reality is that this is a situation that arises more often than you might think, and it surely pays to be prepared. We asked a leading expert from Clyde & Co. to provide critical advice…
Responding to poaching in the Middle East
Two of the most important assets of any business are its confidential information and its employees. Companies stand to lose both when their employees defect to a competitor. In this feature, we highlight some of the key legal, commercial and practical measures available to UAE employers when faced with a competitor poaching one or more of their employees.
UAE law expressly recognises an employer’s need to protect its business interests in relation to business secrets and protection of clients. Non-compete restrictions are permissible provided they are reasonable in terms of scope, territory and duration and there are civil and criminal liabilities for employees who unlawfully disclose their employer’s confidential information. UAE law also prohibits “unfair competition”, which includes hiring an employee from a third party with a view to obtaining clients or confidential information from that third party.
However, notwithstanding these statutory protections the onus is very much on employers to identify what information is confidential to it, to set the parameters for its permitted use and to define what an employee (or ex-employee) is prohibited from doing during their employment and after its termination. This requires employers to put in place employment documentation containing well-drafted contractual terms.
In addition to supporting a complaint against an employee (or ex-employee) for breaching UAE statutory provisions, a breach by an employee of their contractual terms will create potential causes of action for an employer. The terms could also have a deterrent effect, particularly if an employer has a reputation for pursuing its employees who breach their contracts.
To supplement the legal protections set out above, employers can take practical steps during the subsistence of the employment relationship to increase their protection from poaching. First and foremost, employers must ensure that employees are properly remunerated by reviewing performance regularly and using bonus plans with deferred elements. However, remuneration only plays a part and employers should focus on cultivating an allegiance with employees so that they reward the company with loyalty. For example, providing proper career structures and recognising an employee’s family commitments and need for leisure time can go a long way towards deterring an employee from joining a competitor.
From a commercial perspective, employers should avoid teams having exclusive coverage of clients. Where possible, clients should be serviced by a number of different senior employees to maximise the chances of retaining the client should a particular employee (or team of employees) leave.
Reacting to a discovery
An employer who discovers the potential poaching of one of its employees should establish the facts, as far as possible, without delay. In particular, it is important to try and ascertain whether there are any other employees involved (i.e. is the competitor attempting to poach one employee or a team of employees?) and whether the employee(s) involved have breached, or are likely to breach, their contractual obligations. Potential sources of evidence will likely include:
- colleagues who work closely with the employee(s) (e.g. secretaries and personal assistants);
- computers and other electronic communications systems;
- mobile phones, sim cards and itemised phone bills; and
- social networking sites such as Facebook, LinkedIn and Twitter.
Employers should be mindful that an individual’s right to privacy is protected by the UAE constitution and various statutory provisions. We therefore recommend obtaining legal advice before commencing any investigations.
Responding to poaching
Employees (particularly senior employees) will often be subject to post-termination restrictions. However, enforcing restrictive covenants onshore in the UAE is difficult because UAE Courts will not grant injunctive relief (i.e. an order by the Court prohibiting an employee from taking certain actions, such as joining a competitor in breach of a non-compete provision).
However, injunctive relief is potentially available in the Dubai International Financial Centre (DIFC) and the new Abu Dhabi Global Market (ADGM), given that both are common law jurisdictions. Although there have not yet been any cases on the enforcement of post-termination restrictions in either the DIFC or ADGM, a DIFC or ADGM Court would likely assess the enforceability of restrictive covenants by reference to the same principles as in the UK (i.e. do the restrictions go no further than is reasonably necessary to protect the legitimate business interests of the employer?)
Threaten/institute legal proceedings against the employee and/or the poaching employer
In the absence of injunctive relief, an employer’s recourse against an employee for breach of a post-termination restriction is limited to a claim for damages. However, the poaching company will likely have far greater resources than the employee (although it is possible that the defecting employee has secured an indemnity from the poaching company for legal costs and damages arising from litigation) and so may prove to be a more attractive defendant to any legal proceedings.
Regardless of whether the employer actually commences legal proceedings, the threat of doing so will often deter the poaching company and/or the defecting employee from proceeding with the move. In deciding whether or not to institute legal proceedings, the employer must weigh up a variety of factors including:
1 the potential impact of the employee’s departure;
2 whether legal proceedings have any real prospect of success;
3 the potential costs of legal proceedings;
4 the likely reaction of the remaining workforce (e.g. is it necessary to send a message to other employees or will they view legal proceedings as heavy-handed, bully-boy tactics?); and
5 the likely reaction of clients, competitors and the market.
It may be possible for onshore employers to ask the UAE Ministry of Labour to impose a ban on employees who have breached their terms and conditions of employment and/or have disclosed the employer’s confidential information. However, such a ban would not prevent an employee from working for a competitor which is not registered with the UAE Ministry of Labour (i.e. if the competitor is located in the DIFC, ADGM or any other free zone).
Retain the employee(s)
The threat of dismissal can be used to retain defecting employees although employers should be careful to avoid acting in breach of contract as this could result in the loss of the benefit of any restrictive covenants. A preferable option may be to convince the employee(s) to stay by:
1 improving the employee’s remuneration;
2 promoting the employee(s); and/or
3 agreeing not to commence (or pursue) legal proceedings against the employee.
Employers in the DIFC and ADGM should be alive to the risks of “turning” a defecting employee who has already signed an employment contract with the poaching company. Case law in other common law jurisdictions has held that in these circumstances an employer can be held liable for inducing the employee to breach their contract with the poaching company.
Sell the business
Where the defecting employees make up the entire workforce in a particular practice area, employers should consider whether they wish to sell that part of the business to the poaching company. Such “sales” often comprise deferred payments based on the income stream from the business taken by the defecting employees. From the poaching company’s perspective, agreeing a quick sale avoids potentially costly and time-consuming litigation (and maximises the chances of securing the business which it may have set out to poach in the first place), which should enable the victim employer to secure a premium price from the poaching company.
Whatever legal and/or commercial approach an employer decides to adopt the following steps should always be at the forefront of an employer’s mind when dealing with a defecting employee:
1 Protect/consolidate the company’s position with clients;
2 Take steps to protect the company’s confidential information;
3 Reassure and motivate the remaining workforce; and
4 Do not overreact – it should not always be assumed that an employee being poached by a competitor is a negative.
Defecting employees may give a company an opportunity to re-focus its business.
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Rushika Bhatia Editor
Rushika Bhatia is one of the region’s leading commentators on business and current affairs issues. She is the Editor of SME Advisor magazine - the flagship title of CPI Business. She is passionate about infographics – with special emphasis on data, research and statistics. Rushika has a Bachelor’s Degree from Indiana University, USA and is also CIMA qualified.