When Teams Resign: Remedies, Leverage and Effective Resolution for Private Equity Sponsors

In this last post of our recent series considering the practical and legal issues for private equity sponsors and portfolio companies where teams of employees leave, we address the key strategic question: what remedies may be pursued; what leverage does the employer actually have; and how best to seek to use the levers at the employer’s disposal to achieve an effective resolution?

Follow the money

If the departing employees are joining or establishing a new venture backed by debt finance, the employer may have more leverage than it realises. Finance documents typically contain representations, warranties and covenants, including about the absence of current or threatened material litigation. They also usually require notification of new proceedings. The threat of litigation may therefore trigger disclosure obligations to the new business’s lenders, and potentially lead to breaches of such contractual terms. 

If earn-outs or deferred funding are tied to the new venture’s earnings, the new employer has strong incentives to maximise revenue from solicited clients; the same applies to individual senior employees. However, the new employer will also have strong incentives to avoid litigation costs and management distraction. And where the new employer is itself also FCA-regulated, fitness and propriety considerations will militate in favour of ensuring that new employees comply with continuing contractual obligations owed to their former employer. 

These dynamics may create negotiating leverage for the old employer. The new employer may be willing to agree to restrictions on the former employees' activities, client contact limitations, or even financial settlements to avoid jeopardising their financing, triggering disclosure obligations or regulatory breaches that could alarm investors.

However, the more attractive the remuneration package offered to the joiners by the new employer, the more disciplined must the old employer be in establishing specific acts of collusion in case of team moves. Absent concrete evidence of senior managers’ inducement or encouragement of team members to join them at the new venture, it will be open to the senior managers to deny causation by pleading the “Pied Piper” defence: namely, that they themselves would have left and accepted the generous pay even without their team joining them, and at least part of the team would have followed them in any event, i.e. absent any breach or collusion.

In considering this type of defence, the courts’ starting point is to assume that the “pipers played entirely lawful music”, i.e., to ask whether, in the absence of any contractual or other breach by the senior managers, their team members would have been likely to join their new venture. (This approach was confirmed in the recent decision of Birt J in Guy Carpenter v Willis 2026 EWHC 361 (KB).) This is in each case a factual question, which must be borne in mind when designing and conducting forensic investigations and interviews, with a view both to undermining the default assumption by showing specific inducement by the senior managers, and to establishing the motivations and circumstances of the other leavers. How to get the evidence-gathering exercise right has been covered in our previous posts (Post 2; Post 3). 

The position of the new employer

Individual employees may have limited means to satisfy judgments. The new employer is likely to have deeper pockets. The former employer will therefore naturally want to consider the viability of claims against the new employer for inducing breach of contract or, if confidential information has been transferred, breaches of confidence. The former employer should also consider if there is a basis to allege misuse of clients’ personal data. If such allegations can be made, they will create ICO reporting obligations and FCA notification requirements that the new employer will want to avoid.

To succeed on a claim for inducing breach of contract, the former employer would need to show that the new employer knew about the restrictive covenants. Employment contracts should therefore require employees to disclose their restrictions to future employers. Where that obligation does not exist, the former employer should consider writing directly to the new employer to put them on notice of the restrictions. This will foreclose the new employer from arguing that it was not aware of the restrictions, and may also prompt the new employer to forbear from continuing efforts at solicitation.

Regulatory references 

In the financial services context, if departing employees are subject to SMCR, the former employer will be obliged to provide regulatory references to the new employer under SYSC 22. Ordinarily, this must be done within a six-week period. The six-week deadline might seem tight given ongoing investigations, but SYSC permits supplementary references when new facts emerge after the initial reference is provided that bear on the employee’s fitness and propriety. Concerns in a reference about an employee’s fitness and propriety expressed by reference to allegations that they have engaged in breaches of covenant or failed to answer questions about suspected solicitation seriously may provide the former employer with a basis to negotiate an acceptable resolution with the employee and their new employer.

Court remedies: the toolkit

Whether in the context of negotiating a resolution, or considering the viability and cost-effectiveness of legal action, the former employer will need to consider the different remedies that may be available and the value that they each may hold relative to the expected costs of litigating to achieve them.

• Damages: Available for established breaches causing quantifiable loss. Remember that the measure differs between non-contractual claims (position absent the breach) and contract claims (position if the contract had been performed). Choose your causes of action strategically based on the defendant’s means and available evidence.
• Account of profits: An equitable remedy for breach of fiduciary duty or confidence, and exceptionally for breach of contract. It shifts the burden of quantifying profits to the defendant. This may be a useful remedy where damages are hard to calculate, but risky if defendants have not yet made substantial profits attributable to their breach.
• Interim injunctions: These will be the former employer’s primary weapon when restrictions are still running. But the former employer will need to satisfy the American Cyanamid test: namely, as to whether there is a ‘serious issue to be tried’; whether the so-called “balance of convenience” favours the injunction; and whether damages would be an inadequate remedy. And remember the need to satisfy a higher evidential threshold when short restrictions mean that a substantive trial won’t occur before the restrictions expire. In such cases, the former employer will need to demonstrate that its underlying claim for breach of the restrictions is likely to succeed on the balance of probabilities.

• Springboard injunctions: Where employees gain an unfair competitive advantage by breaches of their contractual terms (particularly arising from the misuse of the employer’s confidential information), the employer may be able to apply for an injunction preventing the employee from exploiting that “springboard”, even after restrictions expire. In recent cases, the courts have accepted that springboard relief may be available in team move scenarios. 

  However, where springboard relief is likely to be available and of assistance to the employer (or sponsor), it is important to act swiftly. The measure of the length of a springboard injunction is “the length of time that it would have taken the wrongdoer to achieve lawfully what he in fact achieved unlawfully, relative to the victim”. In employee solicitation cases, this period is counted from the date of the resignations. Where, for example, the competitive advantage gained by the use of unlawful means is assessed as a six-month head start, and the matter reaches trial more than six months after the relevant resignation, no springboard relief is going to be granted in respect of that resignation. 

• Delivery up orders: If employees refuse to cooperate in returning devices or there are grounds to believe that the employer’s confidential information remains on their personal devices, delivery up and imaging orders may be available to compel compliance.

Could aggressive enforcement be counterproductive?

Before launching proceedings, the employer should also consider the broader impact on its remaining employees. If the employer operates in a closely-knit industry or geography where the remaining employees know the leavers well, aggressive litigation against the leavers may not be well received by the remaining employees. Successful proceedings against individuals with limited means may feel like vindication, but if they trigger a second wave of departures to the competitor, the employer may have won a battle, but lost the war.

To state an obvious point, careful consideration by the employer of its ultimate objectives should inform its selection of the strategy. Is the goal to recover losses, send a deterrent signal, or disrupt the competitor's business model? Different objectives will warrant different remedies and different levels of aggression.

Conclusion

A decision to litigate is ultimately commercial, not just legal. Sponsors should therefore ensure that portfolio company management carefully consider several questions. What are we trying to achieve? What is the realistic recovery? What are the second-order effects on the remaining business? Sometimes the right answer will be a negotiated resolution that focuses on limiting future damage rather than punishing past breaches.

But that strategic decision can only be made effectively from a position of strength - which requires following the framework we've outlined over this series. To recap, the key steps will include: 

• immediate measures to suspend IT access and preserve client relationships; 

• a prompt but thorough forensic investigation; 

• compliance with data protection obligations; 

• ensuring the enforceability of applicable restrictive covenants; and 

• clear-eyed assessment of available leverage and legal remedies.

To conclude using Sun Tzu’s oft-quoted words, the greatest victory is that which requires no battle. Accordingly, the best way of responding to a team move is to prevent it from turning into a crisis. To achieve that, sponsors should audit their portfolio companies' employment contracts; align restrictive covenants across key employees; implement proper resignation procedures; and ensure management knows the playbook before they need to deploy it. That preparation will save legal fees, protect client relationships, and preserve business value if and when departures occur.