Bad behaviour costs dearOn 1 Oct 2002 in Personnel Today The manner in which managers at City brokers Cantor Fitzgerald tried tointroduce new financial terms for two of its brokers ultimately invalidatedvital restrictive covenants in their contracts. Chris Southam urges firms tolearn the lesson that macho management can have unforeseen consequencesLap dancing as R&R, aggressive and foul language and telephone numbersalaries – it’s no surprise that the national press jumped on this summer’slegal spat between City broking heavyweights Cantor Fitzgerald and ICAP withunabashed glee. But now that the brouhaha has died down, it is well worth having a lookbeyond the silly season copy to see whether there are any lessons for HRpractitioners to take away. This was not exactly an everyday tale of country folk but then again, therewas nothing earth-shattering about the legal issues. It was simply an everydaytale of rival businesses competing for the best staff in their field. Of coursethere was a salacious element – but that was by-the-by. So what was all the legal fuss about? Simply this. Three City brokers employedby Cantor Fitzgerald wanted to join Cantor’s main rival, ICAP. (There had beenan unsuccessful attempt at a no-poaching protocol after September 11 whenCantor so tragically lost a substantial number of its most talented people.) Unreasonable restraint ICAP very much wanted to recruit the brokers – Edward Bird, Luigi Boucherand Spencer Gill, three extremely talented and profitable people. There is, ofcourse, a ‘but’. The three employees had all signed up to contracts with CantorFitzgerald which contained some extremely restrictive covenants. These,broadly, can be described as non-solicitation of customers, non-competition(such as by joining a competitor) and non-poaching of employees. A great deal of care had gone into drafting the relevant clauses and theyseemed watertight. What the three brokers wanted to do was to ‘bust thecovenants’. One way would have been to demonstrate that the covenants were anunreasonable restraint of trade and thus, as a matter of public policy,unenforceable. Here the competing interests are clear: the brokers wanted to befree to sell their services to anyone; Cantor, having paid them an awful lot ofmoney, wanted to protect its client base and, equally (if not more)importantly, protect the stability of its workforce. Wooing a large andprofitable team away from a competitor is seen as a real coup. The loss of sucha team can be extremely damaging – hence the ‘no poaching’ clause. It is interesting to note that none of the brokers sought to argue that anyof the restrictions Cantor sought to enforce was an unreasonable restraint oftrade. So how could they walk away from their covenants with impunity? It isonly now that we get to some real law. The three brokers had to rely upon thecommon law concept of repudiatory breach. Briefly, this occurs where anemployer acts so badly towards an employee that the latter is entitled toresign and complain of constructive dismissal. Repudiatory breach Not every breach will allow an employee to make this complaint – it has tobe one that goes to the root of the contract. An obvious example is aunilateral and substantial reduction in someone’s remuneration. A boss shakingan employee warmly and painfully by the throat is also likely to qualify. Sowhat is the result of a repudiatory breach? The employee is entitled to treatall his obligations under the contract as at an end. These will includerestrictive covenants. The principle is that, if the employer has been inrepudiatory breach of contract, he can no longer rely on covenants expressed toapply after the termination of employment. So that was what this case was all about. Citing foul and aggressivelanguage, and the way in which certain managers at Cantor wished to introducenew financial terms, the three brokers relied upon the oft-quoted implied termof mutual trust and confidence. Broadly, this means that an employer must not,without reasonable and proper cause, conduct itself in a manner calculated andlikely to destroy or seriously damage the relationship of confidence and trustbetween employer and employee. It does not have to be just one incident – therecan be an accumulation of improper acts, the last of which could constitute thestraw that breaks the camel’s back. For the facts of this particular case, go to the 60-page judgment of MrJustice McCombe – but it is the conclusions that are important. The learnedjudge held that Cantor did commit repudiatory breaches against Bird and Gill,but did not do so against Boucher. The breaches related to Cantor’s attempts tomake Bird and Gill accept a ‘new deal’. In their case, the issue was handled onCantor’s behalf by Daniel La Vecchia and in Gill’s case ‘significantly by Mr[Lee] Amaitis’. In Boucher’s, it was handled by Xavier Alcan. In the judge’s words: “Mr La Vecchia and Mr Amaitis had very differentstyles to Mr Alcan. Mr La Vecchia was tough, domineering and persistent in hishandling of the matter.” He was “extremely forthright, and as wasstandard with his manner of speech, there was much use of swearing andobscenities. The explanations of the new proposals were perfunctory andmisleading. Nothing was provided on paper except the odd letters which were themselvesopaque and open-ended…” When Bird indicated that he was thinking ofleaving Cantor, “this led to some very unpleasant remarks about [what]Amaitis would do in response at the insistence of Mr La Vecchia.” Behaved disgracefully There was discussion of a meeting between Gill and Amaitis which the judgepreferred to describe as an ‘encounter’ in which “Amaitis behaveddisgracefully. Even by the robust standards of this trade, the language andcomments of É Amaitis on this occasion may well, on their own, have crossed thethreshold of conduct repudiatory of the employment contract.” So the judgeheld that Cantor had breached that implied term of mutual trust and confidence– and there was no reasonable or proper cause for this. Thus happy to haveescaped their covenants, Bird and Gill exited stage left. Boucher was not so lucky. It is clear from the judgment that Alcan’shandling of Boucher was much more diplomatic. Discussions were much morecordial and, at the end of it all, the judge felt that Cantor had not committeda repudiatory breach and that it was Boucher himself who was in repudiatory breachby resigning without giving proper notice. So what is the moral of all this? It does not matter how well restrictivecovenants are drawn. They may pass muster at trial and, better still, maydeter. But defeat can be snatched from the jaws of victory by an employercommitting that fatal repudiatory breach. Macho management may be de rigueur in some parts of the City, but suchbehaviour can cost an employer dear. Some managers may need to brush up theirskills in tact and diplomacy. If they simply cannot do so, perhaps it is betterto keep them out of what, in Cantor’s case, turned out to be harm’s way. Christopher Southam is a partner in Speechly Bircham’s Employment LawUnit Lessons learned from the case– Post-termination protection willnot be challenged by employees if well drafted.– If action is to be taken to protect the business, approachthe issue in a holistic fashion. Introduce both garden leave andpost-termination protection into contracts of employment.– All contract of employment protection, whether garden leaveor post-termination restrictions, is reliant on the employer acting properly.– Do not allow a climate of bullying and bad behaviour todevelop. It can lead to significant risks to the business and such behaviourcan have a major impact on contract protection.– Ensure that e-mail traffic and other communications withinthe business are conducted in a professional and businesslike manner, in the knowledgethat such traffic will be disclosed in any court action. Related posts:No related photos. Previous Article Next Article Comments are closed.
The Batesville Athletic Booster Club will be hosting the Annual Fall Raffle at the Batesville Knights of Columbus on Wednesday, September 20 at 6:00 p.m. It is your Bulldog pride and support of this fundraiser that has enabled us to purchase uniforms and safety equipment for our athletes.Once again, we are asking each of you to support this very important project by purchasing an Athletic Booster’s Dinner / Raffle ticket for only $20.00 advance sale. Tickets orders postmarked after September 13th or at the door will be $25.00. Each ticket is good for a chicken dinner, refreshments, and a chance to win one of many prizes. First prize is $2,000! You will get your $20 worth just from the meal alone. This is an adult only affair, but carry outs are available. You do not have to be present to win a prize.Batesville Boosters RaffleCourtesy of Bulldogs Coach Aaron Garrett.