Enforcing Restrictive Covenants

Our client, a leading supplier to the hospitality industry (who we’re going to call the “Company”), discovered that one of their former employees (who we’ll call “John”), had violated a number of the post-termination restrictions (sometimes called “Restrictive Covenants”) set out in his employment contract.

Background

The Restrictive Covenants prohibited John from:

• working for competitors within a specific geographic region, for a period of 6 months after leaving the Company;
• soliciting the custom of the Company’s customers or potential customers for a period of 12 months after leaving the Company; or
• soliciting the custom of the Company’s suppliers for a period of 12 months after leaving the Company.

The employment contract also included provisions which protected confidential information belonging to the Company.

The legal issues for the employer client

The Company had made John redundant, and so naturally, he sought another job. He was offered a role with a business whose product range was wider than the Company’s. Technically, this made the business a competitor of the Company, but John assured our client that he would be working solely on products in which the Company had no interest.

Our client therefore agreed to allow John to take up his new role, provided that he did not work in those product areas which overlapped with the Company’s business. However, it soon became clear that John was working in those overlapping competitive areas and had contacted the Company’s suppliers and customers.

This presented the Company with an urgent problem, as John (who was aware of confidential information such as pricing mechanics, the identity of clients and the terms of deals with suppliers) was in the ideal position to unfairly compete against the Company.

The Company, having concerns about the potential misuse of confidential information and client relationships, instructed us to take legal action to enforce the Restrictive Covenants, in order to protect their legitimate business interests.

Steps taken to enforce the Restrictive Covenants

• Notifying the employee of breach -  As a first step, we sent a letter before action to John, outlining his breach of the Restrictive Covenants. This letter invited John to give a set of undertakings, which mirrored the Restrictive Covenants, and made clear that if he refused to give the undertakings or failed to respond to the letter, we would issue proceedings, to ask the Court for an order that he be prevented from working for the competitor pending trial.
• Preparing to act fast with an injunction -  While John was afforded a few days to respond to our letter before action, we recommended the Company, in parallel, consult with a barrister, so that, should our formal legal warnings go unheeded, we would have prepared drafts of an injunction application and particulars of claim against John. These drafts could be sent to John to signal that the Company was serious in its threat to issue proceedings to seek injunctive relief but would not entail incurring the Court fees required to formally issue proceedings.

Outcome for the client

John, through his own solicitors, attempted to present some counterarguments in respect of the Restrictive Covenants, which we quickly rebuffed as there had been a clear breach.  Following that, a negotiated outcome was reached involving :-

• Undertakings: As a consequence of the approach taken by Gannons, John agreed to accept the Company’s undertakings. This meant that its interests were protected at a proportionate cost and without taking any litigation risk.
• Monitoring Compliance: After obtaining the undertakings, the Company was advised to closely monitor John's compliance. The Company has since been regularly checking for any further instances of non-compliance.

Conclusion

By following these steps and taking our specialist legal advice, our client was able to successfully enforce their Restrictive Covenants, without having to go to Court and incur significant additional time and cost. Our client was able to protect their legitimate business interests, mitigate potential damage from misuse of confidential information, and they were able to hold the employee accountable for breaching the terms of his employment contract.