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Employee competition: what to do when your employee artificially manufactures a constructive dismissal situation

Posted on 15 May 2024

It is a reality facing all employers that from time to time their employees will decide to move to a competitor, and sometimes those employees will try to circumvent the contractual obligations employers have put in place to protect the business in those circumstances.

One of the common ways in which employees try to do this is by purporting to resign without giving the notice required under their employment contract on the basis that they have been "constructively dismissed". Employees do this because they know that if they are able to persuade a Court that they were entitled to claim constructive dismissal, they will be released from their notice period (or the remainder of any applicable fixed-term) and their post-termination restrictions), enabling them to join a competitor much earlier than they would otherwise be able to.

So what options are available to an employer who finds themselves in this situation, believes an employee has contrived their "constructive dismissal", and wishes to defend their position?

The most common approach is for an employer to accept the employee's breach of contract whilst reserving its position. This has the advantage of bringing the employee's employment to an end immediately, and enabling the employer to bring a claim against the employee and seek to recover damages (typically the profit which would have been earned by the employer if the employee had worked during their notice period or the remainder of their fixed term) and/or obtain injunctive relief (typically to enforce post-termination restrictions).

An alternative option is for an employer to refuse to accept the employee's resignation 'without notice' and treat the employee as having resigned 'on notice'. This approach comes with a few potential advantages: (i) the employer will be able to seek an injunction which prevents the employee from working for anybody other than the employer until the end of their notice period, which is particularly attractive to employers if an employee is not subject to a non-compete; and (ii) employers can, in certain circumstances, seek an injunction which would restrain an employee from working for a competitor for the period of their notice period and then restrain the employee from breaching their post-termination restrictions, without having to pay the employee for any of that period (for example an employee with a six month notice period and a six month non-compete may be restrained from working for a competitor for 12 months in total). For an example of a case where we were able to obtain that outcome for a client see this case summary.

Whatever approach an employer takes, careful consideration should be given at an early stage to various factors including:

  • Employers can inadvertently prejudice their position if they engage with an employee who has asserted constructive dismissal without first having taken legal advice. Specialist advice should therefore be taken urgently.
  • Employees who act in this way are frequently part of a "team move" and their purported resignation may only be the first of a wave of resignations or the tip of the iceberg of wrongdoing. Employers should therefore urgently investigate whether, for example, there has been any misuse of confidential information, and try to discover whether any other employees have been approached by the same competitor.
  • Injunctive relief will only be granted to enforce post-termination restrictions if the restrictions go no further than reasonably necessary to protect the employer's legitimate business interests. It is likely that an employee will seek to argue that some or all of those obligations are unenforceable. Employers should therefore seek specialist advice at an early stage on whether the post-termination restrictions are likely to be enforceable, and consider the risks of those restrictions being declared unenforceable and the impact such a judgment would have on the remainder of their workforce.
  • Where an employer seeks injunctive relief, a 'speedy trial' will almost certainly be necessary. Employers must therefore be prepared for an intensive, time-consuming and costly period of litigation.

We have been involved in a number of leading cases in this area and have extensive experience in helping employers navigate these issues. Our specialist Employment High Court litigators are available to provide urgent advice to employers facing this scenario and can be contacted by email on MDREmploymentHighCourt@Mishcon.com.

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