Willis Re faces one last talent flight window under UK Tupe rules
Legal arrangements around AJ Gallagher’s acquisition of Willis Re will present a short period in which UK-based Willis Re staff can exit the business while circumventing non-compete clauses and notice periods, this publication understands.
This brief window near the anticipated 1 December close will present a final test to Willis Re’s long-standing – and largely successful – efforts to keep its team together through relentless efforts from competitors to pry away key staff during the period when its ownership has been in question.
It is understood that retention offers, including long-term equity incentives, have been offered to staff comfortably running to three-digits, as Gallagher takes advantage of the discounted price it paid for Willis Re to push awards unusually far down the target organisation.
Nevertheless, competitors are believed to see the employee transfer window in the UK as their last best chance to prise away talent that may be unsettled by the sale to Gallagher.
How Tupe rules work
Gallagher’s takeover of Willis Re will involve the transfer of Willis Re staff under the UK’s Transfer of Undertakings (Protection of Employment) (Tupe) regulations, following agreement of the $3.25bn acquisition in August.
Under Tupe rules, transferring employees have the right to opt out of the move, automatically terminating their employment with their former company.
This terminates that employee’s right and responsibility to work paid notice and removes the need for their former employer to make any kind of severance payment.
The opt-out, however, effectively makes non-compete and non-solicitation agreements with the former employer impossible to enforce, since the former employer no longer has an active interest in the transferring business.
The acquiring company, meanwhile, is unable to place any restrictions on exiting employees as they have no existing contract with them.
Employees who choose to opt out would commonly do so within around a week of the transfer taking place.
This means that there will be a short period in which Willis Re’s UK employees may walk away from new owner Gallagher with no effective restrictions on taking up work with a rival immediately – or from soliciting former clients.
Although some further talent attrition looks likely given the red-hot market for London reinsurance broking talent as Howden and Lockton Re ramp up, there are a number of factors which Willis Re management is likely to hope will curb the number of resignations.
Cash retention and multi-year equity awards are a major part of the strategy to retain staff. But management is also likely to hope that hearts and minds have been won over by the Gallagher deal.
Versus a deal with Aon, the Gallagher deal offers a likelihood of a high degree of stability, with Gallagher Re a relatively small fold-in, synergies not priced into the deal, and promises of major investment in staff and capabilities from the new parent company.
Leadership of the merged reinsurance broking entities will also go to Willis Re CEO James Kent, pointing to the likelihood of continuity for Willis Re staff.
In addition, there is a practical obstacle to Willis Re staff walking out on or around 1 December in the form of the January renewals. With somewhere in excess of half of reinsurance business renewing on 1 January, and likely more for London-based staff, it will be challenging for staff to exit at that point given the disruption of a broker switch at the eleventh hour.
Further, it can be argued that staff have already had the best part of two years to exit the business if they wanted to, with the Willis Re roster already heavily worked over by competitors looking to staff up.
Willis Re was a relative success in warding off the attentions of other employers compared to the primary and facultative businesses. It did, however, lose some high-profile staff, including Asia-Pacific president Mike Harden, against whom the business lost a court case after he defected to Guy Carpenter.
Other notable departures to Guy Carpenter included former UK managing director Warren Neale, who moved the Aviva account; the 24-strong Latin American team led by Tony Phillips and Cameron Roe; and a Middle Eastern team led by Atish Suri.
Willis Re did not respond to a request for comment. AJ Gallagher declined to comment.