The curious case of the wet laptop

In today's increasingly competitive market place, some organisations are adopting a more aggressive approach in hiring new staff from rival…

The Case of Marsh v Euan Nicolson has raised salutary lessons over hiring from rival firms.

In today's increasingly competitive market place, some organisations are adopting a more aggressive approach in hiring new staff from rival companies to increase their market share.

Against this background, the recent case of Marsh v Euan Nicolson – with its unusual facts – stands out as a salutary lesson in what can go wrong in certain situations.

The case concerned Mr Nicolson who was previously employed by Marsh. He was due to leave Marsh in May 2009 to join Aon where he is now the head of their upstream and offshore divisions. Whilst still with Marsh, Mr Nicolson was put on gardening leave of six months. During this time, Marsh accused Mr Nicolson of assisting Aon with a tender for Saipem SpA, an Italian oil and gas contractor, thereby breaching the terms of his employment contract with Marsh.

Marsh proceeded to obtain a court order against Mr Nicolson, which required him not to "destroy, tamper with, cancel or part with possessions, power, custody or control" of various equipment including personal computers.

Tension in the law

Mr Nicolson subsequently admitted that he threw his laptop into a pond near his home to avoid disclosing material that would have shown that he had been working for his new employers during his garden leave.

As a result, the court has ordered a hearing for contempt to be held later this year. This means that there is now a possibility that Mr Nicolson is facing prison time over what started as an employment matter.

There is a tension within the law between protecting the freedom of movement of employees and the necessity of protecting confidential information, trade secrets, poaching of clients and staff. This is an issue that is likely only to grow with the proliferation of IT. Although post-termination covenants are common in contracts of employment, it is not unusual to find that they are often ignored or breached on this basis that matters would not be pursued further, or that breach could not be proved.

It is important to note that these post-termination restrictive covenants are different from the duties owned separately under the contract of employment. While there is much debate and litigation over restrictive covenants, the reality is that many of the breaches committed by departing employees are done before their employment ends – such as gathering of information from the employers’ systems, client databases and financial records. This confidential information is then often used to breach the terms of both the contractual obligations and restrictive covenants.

This point is illustrated by Marsh, as Mr Nicolson was still employed by March at the time of breach as he was on gardening leave. In these circumstances, he would have owed a fiduciary duty – and likely, an express contractual duty – to act in the best interests of his employers and not to do anything that was harmful or which was contrary to such duties.

Working for a competitor would be deemed to be a breach of such obligations.

A further consideration is the fact the courts are slowly waking up to the realisation that 95% of disclosure in commercial cases is now electronic, consisting of e-mails, diary entries, internet usage and the like. Information is store on hard drives, handheld devices, backup servers and all data and metadata is stored in some form and capable of being reconstituted. This makes it almost impossible for anyone to breach their obligations to an employer without leaving some trace and the introduction in October of the Electronic Stored Information questionnaire in commercial disputes will better able complainant employers to protect and guard against such employee activity.

Some basic preventative steps for employers may include ensuring all contracts of employment contain express provisions obliging the employee to act in the best interests of the company at all times, and that restrictive covenants are clear and go no further than necessary to protect the business. In light of the increasing reliance on IT, it is also important to ensure that all IT and systems usage is subject to a screening policy.

Contractual obligations

Upon an employee handing in their notice, employers should consider having a full exit interview and ensuring that all e-mail and internet activity of the employee for the notice period and preferably at least three months prior are monitored. Employers may also consider immediately sending a letter to the employee reiterating their contractual obligations and post-termination covenants and remind them that regular screening will occur. It is better to remove temptation to breach their contract than to have to sue for damages later.

Upon the employee exiting, employers can also ask that the employee hand over all company property and sign a declaration to the effect that they have handed across all retained property and no longer have in their possession, custody or control any confidential information or property of the company, including electronic data.

On a more general note, if the employer is concerned about the leaving employee approaching clients, customers or remaining staff, preventative action should be taken before they depart to shore up all relationships, to minimise the risk of the employee soliciting and poaching post employment. Ultimately, however, once a breach is discovered, employers should act fast to take immediate legal advice as any delay may prejudice the right to injunctive relief.

The unusual circumstances of Marsh are an extreme example of what can happen though this type of case is all too common. It highlights, however, the need for employers to take all appropriate precautions when key employees leave for a competitor. While the above will take up valuable management time and resource, the alternative can be costly legal proceedings and as usual, prevention is better than the cure.

Ling Ong and Michael Green, Partners, and

Commercial Dispute Resolution team

This article was first published in Post Magazine on 28 October 2010

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