Employment Update: A Step Too Far? Restrictive Covenants and the Search for Evidence

For employers, the departure of a key employee to a competitor can present real concerns. For this reason it is now standard practice for contracts of employment to contain what are generally referred to as restrictive covenants. These clauses try to prevent an employee, for a specified period of time, from leaving to join a competitor or trying to solicit or poach other members of staff to join them in their new role.

Spy game

When it comes to enforcing these clauses, one of the main obstacles has always been the lack of evidence of wrongdoing or that staff have, in fact, been solicited. It has been confirmed recently that Credit Suisse engaged a private investigator to track its outgoing head of wealth management, Iqbal Khan, because of fears that Mr Khan was preparing to poach bankers and clients for the benefit of his new employer, a rival bank. The corporate spying came to a head this month after Mr Khan confronted private investigators who were following him, leading to an angry altercation in downtown Zurich.

Lack of evidence

Pierre-Olivier Bouée, Credit Suisse’s COO, has now resigned in the wake of the scandal, following the conclusion of an independent inquiry which found that he acted alone in ordering the covert operation. The inquiry, led by an external law firm, also found no evidence that Mr Khan had attempted to poach clients or staff. The chairman of the company, Urs Rohner, apologised to Mr Khan in a statement and acknowledged that the bank’s reputation had suffered.

Mr Rohner distanced the bank’s CEO, Mr Tidjane Thiam, from any involvement in the surveillance of Mr Khan. This is despite it being widely known that Mr Khan’s and Mr Thiam’s relationship had deteriorated over the last number of years as Mr Khan’s ambitions grew to become the bank’s next CEO. These tensions came to a head in a personal dispute over Mr Khan’s redevelopment of a house next to Mr Thiam’s in an exclusive neighbourhood near Lake Zurich. Mr Khan was not required to work out his six month notice period or commence garden leave prior to his departure.

While engaging private investigators has become common in personal injury cases, they are less frequent in employment disputes. That said, the Health Service Executive spent more than €117,000 'spying' on consultants in preparation for its High Court battle over pay to determine if consultants were working within their contracts relating to their private practice hours.

Excessive surveillance?

As well as the data protection considerations about the use of private investigators, it is important that any sort of surveillance is not excessive or an infringement on the employee’s, or former employee’s, privacy. In the High Court case of Sweeney v Ballinteer Community School^[1], where there was a claim of bullying and harassment, the High Court was critical of the decision by the principal, without the knowledge or consent of the Board of Management, to engage a private investigator to follow the plaintiff over the course of four days. The surveillance only stopped after police intervention when the plaintiff became aware of the surveillance.

The High Court held that the surveillance was ‘a most serious harassment of the plaintiff’ during working hours. This was particularly the case in circumstances where the principal was aware of the plaintiff’s medical history and the fact that she had been absent due to work related stress. The Court felt that it was reasonably foreseeable that if the plaintiff was aware that she was being pursued by a person who was not known to her that ‘the effect on her was likely to be so traumatic as to precipitate her into mental illness’. The Court upheld the plaintiff’s claim of bullying and harassment.

In another employment dispute, Luas operator Transdev dismissed one of its drivers after finding he was "moonlighting" as a taxi driver in his wife's licensed vehicle. Transdev had hired a private investigator who observed him double jobbing as a taxi driver. The WRC found that the decision to dismiss him for gross misconduct was fair and reasonable in the circumstances.

The Office of the Data Protection Commissioner has stated that, at a minimum, there must be strong justification for surveillance before engaging a private investigator.

Conclusion

It is important for employers to take a careful look at the drafting of their restrictive covenants for their key employees in order to ensure that they are enforceable. Before taking steps to gather evidence on the activities governed by those covenants, an employer must be conscious of the potential infringement of an employee’s rights under data protection legislation and their general right to privacy. To minimise any possible breaches and reputational consequences for the business, employers should consider whether it is necessary to use a private investigator and that any such decision is reasonable based on a belief that the employee is engaged in wrongdoing.

For more information on the careful drafting of restrictive covenants in your contracts, please contact a member of our Employment & Benefits team.