Leadership lessons on: resolving recruitment conflicts
Recent talent wars have seen the response of ‘I’ll see you in court’ becoming increasingly common when insurance executives change employers. But does it always have to end that way?
Acrimonious disputes following the departure of senior executives are frequently in the insurance media headlines nowadays.
Just last month a Miami judge ordered a group of brokers, who left Willis Re en masse late last year to join Guy Carpenter, to refrain from contacting their old clients or placing any business on their behalf. The mass defection of 24 reinsurance brokers from Willis Re’s Latin American and Caribbean unit followed Aon’s agreement to acquire Willis Towers Watson in March.
The London market has seen more than its fair share of fall-outs. Last year, Marsh-owned JLT and Hyperion reached a confidential settlement of a lawsuit in which the latter was accused of unlawfully recruiting 47 of its rival’s staff.
In 2019, a UK High Court judge ruled in favour of Ardonagh in its dispute with rival broker Gallagher. As part of the judgement, Gallagher agreed to pay £3.1mn towards the defendant’s court costs. In that high profile case, involving the hiring of four producing brokers by Ardonagh’s wholesale subsidiary Bishopsgate, a High Court judge ruled that it was not an unlawful team move and that there was no conspiracy.
Richard Griffiths, managing director of executive search consultancy Richard Griffiths & Associates, says that recruitment disputes are an inevitable product of M&A deal activity.
“Insurers and brokers are very much in vogue with the investment community, especially PE and the family office sector. They see the opportunity for growth in a hardening market,” he says. “There is a war for talent happening where investors want to hunt people down, acquire them and retain them. When there is more poaching happening, there will inevitably be more disputes.”
Charles Wynn-Evans, partner with law firm Dechert, also points to a high level of job movement over the last couple of years among brokers but also among underwriters, especially where people want to leave to set up their own operation.
“There is an active market where people are trying to hire talent for new operations,” says Wynn-Evans, who heads up Dechert's employment practice in London. “Employers react differently to team departures and it’s a very context-specific issue. It can depend on how important the line of business is to them and how important it is to demonstrate that the employer will defend its position as well as the commercial benefit of potentially having to spend considerable sums of money on litigation – a cost benefit analysis can be crucial.”
The more dynamic market for talent – and litigation - has brought the design of employment contracts clauses further into the spotlight. Non-compete clauses in particular have become more controversial and, in December, the UK Government launched a consultation on the subject in advance of introducing reforms.
The consultation is looking for views on whether non-compete clauses should be enforceable only when the employer provides compensation during the term of the clause. The Government is also considering prohibiting the use of all non-compete clauses, although it accepts that this proposal is unlikely to get much support from businesses.
“The idea of mandatory compensation has its attractions because the individual then doesn’t lose out financially while they can’t work. It mirrors what is required in some other jurisdictions. Indeed it is becoming more common for senior executives to expect their employment contracts to provide that they should be paid during any non-compete period,” Wynn-Evans says.
“On the other hand, some take the view that they don’t want to be out of the market at all, to protect their edge and connections, and are very resistant to non-competes.”
The Government thinks that that an outright ban would have the benefit of increased certainty for both employees and employers, and may also increase innovation and economic growth by making it easier for individuals to start new businesses or new jobs.
In some jurisdictions, such as Israel and California, “non-competes” are either banned or are significantly less enforceable.
“If the government opted to ban non-competes all together it would be interesting to see how that would interact with the enforcement of garden leave, which is itself a form of non-compete,” Wynn-Evans notes. “You would always expect individuals to give some notice, for handover etc. and so this is certainly an area for employers to keep an eye on in terms of how best to protect their businesses.”
Griffiths says that writing in contract clauses intended to seriously restrict and frighten employees into compliance can backfire.
“Judges often just throw these onerous contract clauses out when challenged in court. Reasonable contract clauses and notice periods should be enough to address and protect genuine business interests such as revenue, people and data assets.”
Companies should list the confidential data that they provide their executives access to, including specific client contacts and policy details, Griffiths advises. Such information, signed for and updated on a regular basis, can then be brought to bear in any later potential dispute.
When a move is on the cards, executives need to think very carefully about what their contractual obligations are, as do the companies hiring them, Wynn-Evans says.
“If you hire someone in breach of their obligations – whether in relation to confidential information, covenants or otherwise - you can be drawn into litigation. Companies should make sure as far they can that the people they are talking to comply with their own obligations.”
Disputes commonly happen when a number of people resign at the same time to go to the same place. The existing employer might assume someone – a recruiting sergeant - has orchestrated the mass defection from the inside. That someone could have breached their duties of good faith.
Griffiths says that recruiting people independently (one at a time and not as a team) is key. He stresses that collusion and the removal of confidential corporate information is not allowed.
But he stresses that there is no cheat sheet: “There is a formalised and proper procedure for hiring people from competitors that ensures no-one ends up in court. Employers are allowed to headhunt anyone they want in free market economies and employees are free to change jobs.
“But executives in leadership roles have a fiduciary duty to their existing employers and are not free to facilitate the departure of corporate assets – including people - and confidential information. Neither I, nor my clients, want or encourage executives to breach their contracts of employment.”