For Mishcon de Reya’s Daniel Naftalin, some of the most significant cases in his career are those that he lost. “When you become a lawyer, you think that justice will prevail. Sure, some people are more idealistic than others, but if you’ve got a client who’s great – who’s trustworthy and has been treated horrendously – then they should win their case, right? 

“I had a case early in my career where the treatment was so bad and the evidence so clear that the company admitted the discrimination and relied on the statutory defence. It argued that it shouldn’t be liable for the actions of a rogue employee. The Employment Tribunal decided that the treatment didn’t actually happen – which wasn’t even an outcome it was allowed to find on the pleaded case!”

Naftalin’s client eventually won an appeal against the ruling, but the case was sent back to the Employment Tribunal to be heard again, at which point, the client ran out of funds. “The other side didn’t want to go through the case again because the publicity had been so horrendous, and therefore it was settled,” he explains. 

“It was a raw experience of how the Employment Tribunal process can work. I learned that there are no certainties in litigation. Most cases go the way they should, but it doesn’t have to be an all-or-nothing game and compromise is usually necessary. Getting your client to understand that is part of the advice you need to give them.”

After training at Leicester-based law firm Harvey Ingram Owston, Naftalin moved to London to join Mishcon de Reya in 1998. Twenty-five years later, he is now chair of the firm’s employment department, with a client roster that includes banks, hedge funds, FTSE 100 & 250 companies, CEOs and directors, Premiership football clubs, and footballers and managers, as well as a host of other big-name employers and senior executives. 

During his career, he has litigated many landmark cases, including successfully representing 21 former Dresdner Bank employees in a high-profile, three-year High Court battle over €50m in unpaid retention bonuses, as well as acting for Pimlico Plumbers in its Supreme Court case over worker rights.

Over the last decade, Naftalin’s practice has shifted significantly towards team moves and restrictive covenant enforcement. “I love it. It brings together all sorts of different skill sets and, in some ways, it’s the most challenging area of employment law,” he says. 

“It can be very stop-start from a caseload perspective, but when it really kicks off, it’s all-encompassing. You can go a few months without a big case, and then something hits and you’re doing two year’s work in six months. So it gets very, very busy, but it’s very exciting and draws on experience, legal knowledge, strategy and commercial awareness.”

Despite the challenges, it’s the high-value, high-pressure nature of team moves that Naftalin particularly enjoys. “You have two commercial counterparties. One is trying to gain a commercial advantage by hiring from the other and the other is seeking to protect its business. It can be existential and sometimes when you have two well-funded parties in dispute, it can feel almost gladiatorial. 

“As a lawyer, you need to understand the commercial imperatives, the risks your clients are willing to take, the psychology of these disputes, how the parties react throughout the life cycle of the claim, and, ultimately, try to bring it to a sensible resolution according to the needs of different stakeholders, though sometimes that is not possible.”

Applying pressure

Of course, certain businesses are less likely to litigate such moves, preferring to settle things quickly and quietly instead. “Team move litigation and restrictive covenant enforcement in the legal sector is rare because no law firm wants to tell clients where they can send their work – and it certainly doesn’t want to tell the world that it’s lost high-quality individuals or clients. 

“So when partners or teams do leave firms, things tend to be done quietly, possibly with a commercial arrangement and often a low-key statement saying something like, ‘We thank this person for the work they’ve done and wish them the best in the future’. It’s very much a nothing-to-see-here type approach; the message being that the firm is bigger than the individual. The alternative is not a very attractive position for firms.”

The majority of Naftalin’s most recent cases come from the hedge fund, recruitment, and insurance industries, but his experience comes from a wide range of sectors. Regardless of the sector, the key to such disputes is often the ability to either dissipate or build up pressure and emotion in the case, he explains. 

“You’re either trying to create pressure or reduce pressure. Generally speaking, you want to find the appropriate time to settle these things because it’s rare that a party is really interested in going to court because the risks are so great. As I said, you’ve got no guarantees in the court process, which is public, expensive, and very stressful for most witnesses whichever side they are on.”

Evidence suggests that team moves follow financial cycles. So, what do recent market moves tell us about businesses’ faith in the economy? “What I find is that during the initial panic of a significant global event – be it the 2008 financial crisis, the pandemic, or to some extent the war in Ukraine and inflation – there is an initial period of paralysis where businesses don’t want to incur costs except [for] what is absolutely necessary,” says Naftalin.

“However, it doesn’t take long before the more bullish, ambitious, and entrepreneurial see opportunities. Of course, it’s a risk, but when people see an opportunity or feel an upturn is coming, that’s when they’ll recruit aggressively to get ahead of their competitors. And I think we’re in that moment now actually. We’re getting a lot of inquiries from companies that have a lot of dry powder to invest in staff and want to move fast and with that you get disputes. It’s not dissimilar to the private equity market in that respect.”

Amid a challenging economic climate, Naftalin nonetheless expects to see many more redundancies in the weeks and months ahead. “There’ll be a lot more terminations, so there’ll be litigation coming out of that, and probably more grievances, disciplinaries, and investigations. But as the economic situation stabilises there will be a lot more employment support work as transactions finally pick up. Those are the areas in which we’ll see growth.”

Trade secrets and non-competes

If team moves are in the offing, then employers keen to avoid litigation would be wise to ensure incoming staff are not bringing sensitive information with them. “It’s relatively rare for an organisation to look to take another’s confidential information though, of course, it does happen. Usually, they are looking to hire good people and to do so lawfully. If you’re managing these processes sensibly, then departing employees will be told that company information should be kept confidential, and the hiring company will say they don’t expect you to bring or use confidential information. 

“The alternative is counterproductive and can lead to avoidable litigation. Companies get very angsty when people take confidential information, particularly if it is fundamental to the business. If you’re taking a hedge fund algorithm, then expect to be litigated against. But if you’re a recruitment consultant taking some client details, then you may get a stroppy letter and asked to return the details, but it’s unlikely to go much further than that.”

The trend of antitrust agencies clamping down on anti-competitive practices is one Naftalin is closely watching, especially concerning the potential outlawing of non-compete agreements. “It’s a really interesting topic that’s been debated for years. Non-competes can suppress movement between jobs and, to a degree, innovation. But you can see why people say companies’ intellectual capital, confidential information, and strategic relationships need protection. A balance needs to be drawn,” he says.

“With non-competes we have a very long-established common law on enforceability, which is tweaked on a regular basis by different cases. But there’s a lot of grey in there. In many cases, no one really knows whether a 12-month non-compete would be enforceable or not. 

“An expert lawyer can tell you what they believe the court or arbitrator would find, but it would be nice to know with absolute certainty that, for example, 12 months is too long but nine months would be appropriate, and we would know that because of, for example, a person’s title, job, or pay. You can see that as a matter of public policy, it would be good to have an identifiable period that we know is enforceable because it would be better for everybody to have certainty.”

Despite the arguments against their continued use, Naftalin does not see the UK following several US state lawmakers or federal agencies in seeking to ban non-competes. “I feel most companies and industries consider them a necessary evil. In fact, banning non-competes could actually suppress innovation because people won’t be trained in the same way or given access to the same information or opportunities if companies believe staff can just walk away and abuse those privileges.”

A perfect fit

When Naftalin joined Mishcon de Reya in 1998, the whole firm was a £12m business. Fast-forward more than two decades, and Mishcon de Reya announced revenue of £230.7m in 2022 – an increase of 22% from the previous financial year – while profit per senior equity partner rose 11% in a return to pre-covid levels of £1.05m. The firm’s employment practice has also changed considerably over recent decades.

“I remember when the department brought in significantly less than a million pounds of revenue every year. Now we are many, many multiples of that,” says Naftalin. “We’ve come from having only one exclusive employment lawyer in the department – Joanna Blackburn – to around 80 employment lawyers in the firm. That excludes a large immigration department and a load of litigators who do employment-related disputes in the area of fraud, data theft, white-collar, and regulatory work. So, we’re probably closer to 120 lawyers doing employment-related work of one sort or another. That’s massive growth in this area.”

As Naftalin explains, the firm’s client base has also evolved. “If I go back to those early days, we were probably 90% senior executives and 10% corporates. Now, those percentages have almost reversed. In the old days, we cared passionately about helping the underdog partly because those were the cases we had, but we now apply that same tenaciousness and passion to cases we have across the spectrum. We also work hard to build very close personal relationships with clients who understand that we care about them, their businesses, and their cases.”

Mishcon de Reya’s January merger with Taylor Vinters looks set to take Naftalin’s department to the next level. In addition to the arrival of 16 new employment lawyers, Taylor Vinters has also brought with it a global employment support business. Rebranded last month as “MDR ONE”, the service aims to provide HR and in-house legal teams in primarily US-headquartered multinationals with centralised employment law support across more than 120 countries.

“It’s really exciting because, whilst we have always done this type of business, now we have a tech-enabled business exclusively dedicated to this area,” says Naftalin. “Taylor Vinters were also experts in offering employment law and HR services to start-up, scale-up businesses. That is something we had talked about doing previously, but never took the plunge. 

“Now we have a nascent HR advisory business designed to work for start-ups and scale-up businesses in the life science, biotech, and media sectors. It’s fantastic because we can now speak to clients about a whole range of services we couldn’t offer before. If I had been able to define what I wanted out of a merger partner, it would’ve been hard to define something as perfect as the legacy Taylor Vinters employment team. It’s almost like a jigsaw puzzle with two interlocking pieces.”

Hybrid-working disputes

Looking ahead, Naftalin expects disputes over hybrid-working rights to increase. “Hybrid working is obviously an area that is going to be litigated. People feel a strong entitlement to work flexibly now and some will fight for those rights. Parents and carers benefit from more flexible working, so it may well be that [those rights] start being asserted through discrimination claims.”

When it comes to remote or hybrid work policies, Naftalin explains that Mishcon de Reya trusts its people “to do what they think is appropriate to get the job done”. “It may be a moving feast and vary at different times for different people in different departments,” he says. 

“The challenge is to maintain social bonds, creativity, and learning through osmosis when people are not together as much. But the knowledge issue is not just a partner-to-associate thing. It cuts across the entire business. It’s managing associate to associate. It’s associate to trainee. It’s PA to lawyer. It’s about knowing each other, knowing our clients, and knowing what’s going on in the wider business. For me, the challenge is avoiding what might be lost whilst retaining all the benefits.”

That being said, Naftalin has not faced pressure from clients for this team to return to the office full-time. In a memo to external counsel in July 2021, Morgan Stanley’s longtime chief legal officer, Eric Grossman, lamented the “lack of urgency to return lawyers to the office” and suggested that some law firms’ work for Morgan Stanley may be affected by a failure to return to in-person working.

“I've not seen any of that,” says Naftalin. “And I’d like to think our clients would recognise that it’s our business how we manage our firm. As long as they’re getting the advice they need, and it’s done commercially, cost-effectively, and on time, it shouldn’t matter where we are. If clients think there is an issue, obviously they can talk to us about it. But I can’t see many problems for which the solution is that lawyers need to be in the office more.”