When does a regulator pay costs? The Court of Appeal has spoken
WhatsApp famously offers “end-to-end encryption” so that “your messages… are secured from falling into the wrong hands” and “only you and the person you’re communicating with can read what’s sent” (these are quotes from its website, although at the time of writing it is being widely reported that its technology was recently compromised by spyware). With their messages so highly secured, employees involved in team moves might therefore believe they can throw caution to the wind, but on subsequent disclosure in legal proceedings their chats are liable to come back to haunt them.
The case involved a large group of defendants who were alleged to be liable for conspiracy to injure by unlawful means in connection with a team move between competitor cybersecurity companies. In brief summary, the co-founders of one sold their shares in it, but remained on as employees and directors; they were subject to various restrictive covenants, as well as directors’ duties; and then together with the managing director (MD), they were accused of leading a highly orchestrated scheme to poach key employees in favour of a direct competitor company. By the time the claim was issued, there had been 28 resignations (almost half the workforce). The employees involved were specialist “pen testers” (whose work involves deliberately trying to hack clients’ IT systems). Suitably skilled pen testers are in short supply.
The main evidence in support of the injunction application came from WhatsApp messages. The Court of Appeal took the unusual step of annexing them to its judgement and they certainly make interesting reading. The Court found they showed that the MD whilst on garden leave worked closely with a former colleague who had already moved to the new employer in planning a team move of 21 employees in four stages. There was a group chat named “Order of the Phoenix”. Pseudonyms were used (with the MD called “Vlad” and participants told to make sure he was in their contacts only under that name). The overall plan was disguised as a bowling championship (“the Hammer’s Bowling Championship”, “the Hammer” was the pseudonym of the new employer’s founder). In an amusing twist, the group chat included discussion (amongst professional hackers) of how to close it down and delete its contents given potential “legal consequences due to the non-poaching clauses…”
Springboard injunctions can be obtained to prevent serious economic loss to a previous employer caused by employees taking unfair advantage of breaches of their obligations such as confidentiality, fidelity and restrictive covenants. In this case, the relevant injunction prohibited a range of activities pending the start of an expedited trial within five months, including enticing away any further employees, the provision of pen testing services to their new employer by the relevant employees, and any solicitation or dealing with clients of the previous employer. Also the new employer was prohibited from carrying on any pen testing business in competition with the previous employer. On appeal this was varied to allow it to continue outsourcing such business, as previously, but the Court of Appeal found that the Judge had been correct to grant an injunction preventing the new employer from carrying on pen testing in-house.
The key legal point from the case is that in springboard injunction cases it will generally be necessary for the judge to assess the strength of each side’s case on liability, as well as the length of time that the unfair competitive advantage from the relevant wrongdoing at issue will continue. The starting point, as always in employee competition injunction applications, is whether there is a serious issue to be tried (which sets the bar fairly low for claimants), whether damages would adequately compensate the claimant on success at trial (or the defendant if the claimant does not succeed at trial) and, if not, whether the “balance of convenience” favours the preservation of the status quo by granting the injunction pending trial. However, in springboard injunction cases, the injunction effectively hands the claimant a substantive remedy, by restraining the defendant’s freedom to carry on business or deploy their skills. It may also preclude the defendant from honouring contractual commitments in favour of third parties, such as employees and clients. For those reasons, the court should take into account the strength of each side’s case and undertake a fair and reasonable evaluation of the prospect of the claimant succeeding at trial when considering springboard injunction applications.
In the current case the evidence of the WhatsApp messages provided ample evidence of strong prospects of success at trial. It was the key to success at the interim injunction stage, and a useful reminder that all electronic data, including from social media and instant messaging platforms, is potentially subject to disclosure in legal proceedings.
Andreas White’s areas of specialism include employment litigation, senior executive contracts and severance arrangements, employee competition (confidentiality, restrictive covenants, garden leave and team moves), boardroom and partnership issues, redundancies and restructurings, bonuses, internal investigations, discrimination claims, whistleblowing, TUPE and business transfers.
With a keen interest in the overlap between employment law and financial services regulation, he advises clients from the financial sector on remuneration arrangements and sensitive issues relating to whistleblowing, regulatory investigations and criminal proceedings. Andreas is equally experienced in acting for employers and senior executives, allowing him to understand the issues and tactics on both sides of the table.
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