Wealth Manager has asked one of Britain’s leading employment lawyers to review a case that has potentially profound ramifications for the UK wealth management industry.
We revealed in April that Brewin Dolphin is suing Charles Stanley and six former Brewin staff who quit to join its rival last year.
The High Court writ accused the six, who previously worked at Brewin’s Leicester office, of breaching their contracts and fiduciary responsibilities, and conspiring with Charles Stanley to cause losses to Brewin’s business by ‘unlawful means’. Charles Stanley denies the claims.
It is a case that the whole industry is watching with interest because it could set precedents on how wealth management companies go about hiring in teams.
Elaine Aarons (pictured), a partner at Withers, has reviewed both the writ and the defence. Here she provides her independent opinion on the merits, tactics and likely outcome of the case.
'Long gone are the days when people worked for the same employer for their entire career. However, not surprisingly, individuals who work together successfully often form strong bonds and can end up working together for decades – but not always for the same employer.
So it was to be expected that the team recruited by Brewin Dolphin between 2000 and 2005 would, when the time came to move on, be likely to move together. Some had worked together for almost 25 years.
In 2012 they did move as a team, to competitor Charles Stanley. Brewin promptly brought a damages claim in the High Court against the team and Charles Stanley – basically for the fact they had the audacity to move.
The irony is that when three of the team joined Brewin from Quilter in 2005, they claim, Brewin had asked them to resign in exactly the same way.
Team moves have become difficult to pull off in recent years, due to the way the law has developed, and any litigation almost always starts with an application for an emergency injunction to stop the employees making the move. But by the time the claim was presented, it looks like it was too late for Brewin to make such an application. So the claim is for damages only.
Teams are often immediately on the back foot in cases involving injunction applications – but facing a claim for damages means the individuals in this case look in a significantly stronger position, for reasons explained below.
Conspiracy and Unlawful Conduct
Brewin claims that six former employees acted as ‘recruiting sergeants’ and actively recruited 12 additional employees to leave, and that Charles Stanley induced breaches of their employment contracts. But their case is based on inference alone – Brewin concludes that the fact they left together means they breached their duties. The defence asserts that in fact, good practice was followed: the positions were advertised in a local newspaper and the services of a head hunter were engaged.
Brewin has significant evidential difficulties proving otherwise. It simply has no hard evidence of solicitation or conspiracy on the part of the team of six. Brewin claims the advertisement was used to cover up Charles Stanley’s unlawful conduct but Charles Stanley vehemently denies this.
Given the lack of concrete evidence, at the moment it seems that Brewin is disproportionately reliant on successfully cross-examining the individuals.
Its only other hope is that documents that support its case will be disclosed in the course of the litigation. Given the cost of litigation and the risk of having to pay the other side’s costs if it loses, proceeding without more substantive evidence is a very high risk strategy.
Brewin also claims the team breached fiduciary duties which, if correct, would be serious. But none were directors and it is not clear on what basis they can be said to be senior enough to have fiduciary duties attached to them.
Breach of Contract
Brewin also claims the six employees should have informed it about any approach made to staff by a competitor on the basis of an express clause in the employment contract purportedly requiring this.
Previous case law has endorsed such clauses but the defence argues convincingly that:
(i) the clause does not require disclosure if the employee was only considering such employment and before an offer of employment is made. Also, 10 days prior to the six resigning, one of them informed Brewin that some staff were considering job offers from a competitor; and
(ii) the clause concerned is an unenforceable restraint of trade. Indeed, the defence states that when Brewin was told, it said it was not surprised and it was clear it knew that the individuals had cause to be unsettled.
More than 12 pages of the defence are dedicated to the six former employees’ deep dissatisfaction with management strategy at Brewin. They had been in talks with competitors regarding leaving since 2010. Crucially, all six claim they were so unhappy that they would have left Brewin in any event, even if they had not moved to Charles Stanley. Brewin had 10 days’ notice to entice them to stay and failed to do so, save they offered one of the six a 25% pay rise and other bonuses. He still left.
If the six employees can show that they would have left anyway, Brewin’s claim for damages falls away. What’s more, proving the loss was greater because they moved together and not individually would be very difficult. The only issue is one of timing.
To litigate or not to litigate?
The majority of cases settle before reaching court, so it remains to be seen if the case will actually progress that far.
My expectation is that it will not. Brewin will have been embarrassed by the multiple pages detailing the employees’ discontent with its business strategy and the airing of its internal workings. And will Brewin’s senior management really want to be cross-examined?
If Brewin’s aim is to demonstrate to employees they will be sued if they step out of line, this could seriously backfire if it suffers public defeat.
Prevention or cure?
What are the practical implications for teams?
On recruitment, teams should ideally reserve the ability to move as a team if they are not happy. This could be expressly included in the contract when they join, although it is rare to see such provisions.
When individuals are thinking of moving with colleagues, they need to seek advice early, before damaging and discloseable email or text exchanges have taken place and ideally before they have spoken to anybody about their plans. Almost always, by the time they consult a lawyer they have spoken to their closest colleagues and may have breached duties.
They must never send work emails to their personal email addresses.
They should also consider what non-compete clauses will bite both before and after they have left.
Above all, they must realise that there is no such thing as an off-the-record conversation in these circumstances.
All relevant documents and conversations will be scrutinised in litigation.'