Firms rush to court to keep coporate secrets when staff defect to rival firms

Cath Thorpe, an employment partner at Reynolds Porter Chamberlain, says this is becoming increasingly common. She has dealt with two such cases over the past couple of months.

"Rising job insecurity and unemployment is encouraging more employees to use the confidential information they have obtained with their current employer in order to give them the edge in an increasingly cut-throat job market," she explains. "Some employees are setting up their own businesses using confidential information in order to compete with their former employer."

Every employee owes a duty of good faith to his or her employer. Though staff are free to move to competitors, they risk breaching this duty if they solicit colleagues or clients to join them before they go.

The more senior the employee, the higher degree of fidelity is required. And companies are now more likely to call in their lawyers if there is any sign that departing staff may be poaching clients.

In August, the Swiss investment bank UBS won a High Court injunction against Vestra Wealth, a City investment management company established by David Scott.

Scott's former advisory business had been bought by UBS in 2004. He and his team were "paid handsomely" for this, Mr Justice Openshaw noted in his judgment, and they received "large salaries with substantial bonuses" while at UBS.

Their employment contracts included restrictive covenants barring them from competing with UBS after leaving and from soliciting away staff or clients.

Scott left UBS last year and founded Vestra after being released from his restrictive covenants. In May, however, he went to the UBS offices and handed in resignation letters from 52 UBS staff. All had been offered jobs by his new company.

A further 23 resignations followed, making a total of total of 75 defections from UBS to Vestra. It would be one thing if these people had decided independently to go at times of their own choosing, the judge said. They were entitled to do that. But what they were not entitled to do was to plot a mass departure. Mr Justice Openshaw was "firmly of the view" that UBS had "put together a formidable case that there was an unlawful plan to poach both staff and clients" from the company.

UBS won a temporary order to stop Vestra from gaining a so-called "springboard" advantage, jumping ahead of other start-up advisory firms. But the case was settled a few weeks later after Vestra reportedly promised not to approach UBS staff or clients before next April.

Mr Justice Openshaw demonstrated that restrictive covenants can work. But the law firm LG points out that they will protect only legitimate business interests and must not last too long. Otherwise, they will be unenforceable. And how long is "too long"? It all depends.

Thorpe adds that confidentiality clauses can be used to protect commercially sensitive information after a member of staff leaves. But they must be kept under review, particularly when a member of staff takes on a new role within the company: restrictions designed for someone in personnel, for example, would not be as useful once the employee had moved to sales.

Meanwhile, managers should look out for staff coming into the office at unusual hours, doing a large volume of photocopying or plugging memory sticks into their computers. It may be the first sign that confidential information is about to walk out of the door.