Enforcement of restrictive covenants

Our client was considering applying for an urgent interim injunction to enforce restrictive covenants against a former employee. This would have been an expensive process with no guarantee of success. We successfully negotiated bespoke undertakings to be given by the former employee and his new employer, which gave our client greater protection than an interim injunction at a fraction of the cost.

Background

Our client had recently taken part in a tendering exercise to offer particular professional services to public sector organisations. Our client operates in a small and competitive industry, and the success of this tender is of critical importance to their business. To assist with preparing the bid our client hired an employee.

The employee spent about 12 years working for one of our client’s competitors, and it was hoped he would bring valuable experience and insight to our client and would be of great assistance in producing a successful bid. He was given complete access to our client’s systems and was a key part of the team that worked on the bid. However, shortly after the bid was submitted the employee resigned from our client and indicated that he had accepted an offer to return to his previous employer.

Our client was understandably concerned that:

•  the employee might reveal our client’s confidential information to his former employer.
• the employee might undermine our client’s bid

Our client placed the employee on gardening leave immediately. His employment contract included restrictive covenants which, among other things, prevented him from working for a competitor for six months following termination.

Enforceability of the restrictions

The employee was in a senior employee that played an important strategic role and had access to a lot of our client’s confidential information, and so we advised that the restricted period of six months was not so unreasonable as to render the clause unenforceable. Importantly, it did not matter that hehad only worked for our client for a short period of time; the reasonableness and enforceability of restrictive covenants is judged from the date when the restrictions are entered into, and so restrictions are either enforceable from day one or they are not enforceable at all.

However, there is always a risk when applying for an interim injunction that the court will consider that the restrictive covenant in question goes further than is necessary to protect the interest of the employer, and is therefore unenforceable. In this case, the wording of Mark’s non-compete prevented him from working for any business which consisted “wholly or mainly of the production or supply of goods or services which are the same or substantially similar to the services provided or goods produced, ordered, stocked, or supplied by the Employer or its group companies.”

This was quite a wide restriction, and it might be argued (as, indeed, Mark’s lawyers did argue) that it was wider than necessary. The restriction could have been made narrower by, for instance, specifying that Mark was restricted from providing services which are similar to the services he provided himself while employed.

How we helped

Our client may have been successful in enforcing restrictions through the court. However it certainly would have been expensive and there was a risk they would lose and be liable for the other side’s costs. The employee and his solicitors would have only needed to show one reason why a covenant is unfair and unenforceable, while we would have needed to succeed on every point in order to show it was enforceable.

What is more, even if we secured the injunction it might not have addressed our concerns as the employee (now motivated by spite) could have undermined the bid while not being employed by the new employer.

Instead, we negotiated contractual undertakings, which addressed our client’s concerns directly. We agreed that :-

• the employee could start working for his new employer, but that neither he nor his new employer would announce the move to the market
• the employee would not be in a client facing role and he would have no involvement in appealing or advising on the new employer’s response to our bid.

This achieved our clients aim at a fraction of the cost of an injunction, and likely more effectively.