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Case Study: Imam-Sadeque vs. BlueBay Asset Management (Services) Ltd

Posted on January 18, 2013

"Good" and "Bad" Leavers – a recent case highlights the need to consider the actions of a departing employee during garden leave.

The recent High Court decision in Imam-Sadeque vs. BlueBay Asset Management (Services) Ltd [2012] EWHC 3511(QB) looked at whether an employee's assistance of a competitor while on garden leave breached the terms of his employment contract so that he stopped being treated as a 'good leaver' disentitling him to his deferred shares awarded by the company under a type of Deferred Share Purchase Plan (DSPP).

Mr Imam-Sadeque was employed by BlueBay Asset Management as head of sales. He was entitled to awards under a Deferred Share Purchase Plan where the terms stated his entitlement to all unvested incentive plan awards would depend upon whether he was defined as a 'good leaver' or 'bad leaver'.

Mr Imam-Sadeque decide to leave the Company in July 2011 and negotiated a compromise agreement with his employer which required him to be on garden leave until December 2011, but treated him as a 'good leaver' (and therefore entitled to the vesting of his deferred share funds) provided that he complied with the terms of his compromise agreement.

Unknown to the employer, Mr Imam-Sadeque agreed to join a new start-up rival company, Goldbridge, and during the garden leave he disclosed confidential business information to the competitor and helped recruit one of his colleagues to work for them. The employers argued that Mr Imam-Sadeque was in breach of the terms of the agreement and no longer constituted a 'good leaver' and was therefore not entitled to the unvested funds.

It was held by the High Court that Mr Imam-Sadeque was in breach of his obligations under his employment contract and the compromise agreement. He was a 'bad leaver' and consequently not entitled to the unvested funds from the Deferred Share Purchase Plan.

The influential factors that determined 'bad leaver' treatment

The court identified five relevant facts to shape their decision which might be relevant for other companies:

  • The employee's employment contract imposed a broad restriction on him to stop him potentially threatening the company's interests;
  • The new employer was determined to be a direct competitor of the company as they targeted similar clients and offered similar products;
  • The employee was a senior employee receiving high remuneration, which inferred a duty not to do anything which may result in damage to the company;
  • The employee's role was within a sector of the company that was related significantly to the success and profitability of the company;
  • Finally, the employee's position influenced the structure and operational implementation of the new employer's business plans.

The High Court held that Mr Imam-Sadeque's obligations were not reduced when he went on garden leave. The purpose of putting an employee on garden leave is to ensure loyalty to the current employer during the notice period. This was therefore breached.

What it means for companies with share plans

In regards to 'good' and 'bad' leaver provisions for share schemes, we can draw from this case that 'bad leaver' terms are of still of relevance during garden leave. However, this is dependent upon factual circumstances and the courts will take into consideration a number of factors, such as:

  • Whether the other company is deemed to be a competitor and to what extent.
  • The amount of remuneration the employee receives, and
  • Their level of position within the company.

Where an employee is treated as a good leaver at the start of a notice period or garden leave, if the employee's behaviour is inappropriate during that period, his or her status might change so that the right to shares or other benefits will also change.

For more information on any of the content covered in this article, please contact a member of the RM2 team on 020 8949 5522, or email enquiries@rm2.co.uk.

 
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