As an employment lawyer, I’m used to being contacted by HR professionals in fits of rage about senior employees who have gone off to their company’s most hated rival, taking some of their team and valuable information with them. Despite this, my experience is that there tends to be a reluctance to go beyond the odd nasty letter.
Three main reasons contribute to this reluctance – cost, adverse publicity and risk.
There is no doubt that going down the injunction route is a costly process. However, it is the combination of the risk factor that puts companies off. The client base could normally be adequately protected through non-dealing/non-solicitation clauses in employment contracts. Non-solicitation/non-dealing covenants have also been difficult to enforce but from an evidential perspective – i.e. demonstrating the ex-employee had acted out of turn. This does not even take into account drafting issues such as the covenants being too wide to be enforceable.
Perceived change in judicial approach
Although it can’t be said to be an overnight change, recent cases suggest that companies could be bolder in their approach towards former employees who breach their restrictions. Judicial opinion appears to be swinging in favour of allowing companies to protect themselves, particularly if you work for a company that has valuable client contacts and/or there are rival businesses who could get a head start with some extra information.
Recently a six-month ‘non compete’ (gardening leave) clause was upheld for an HR manager. The employee’s knowledge of the company database was such that the company (Intercall) convinced the High Court that a confidentiality provision was insufficient. This was reinforced by the HR manager’s own argument that he could not remember much information. The Court found that if this was true it meant there was a danger of accidental disclosure of confidential information.
Twelve-month covenants for non-dealing/non-solicitation of clients/key employees have also been upheld in the last year together with other non-compete covenants for longer periods. The longest non-compete was three years (for RDF Media) relating to a very senior employee with complete knowledge of all aspects of the business.
The RDF case was also important in showing that there is a fine line to tread between protecting your legitimate interests and going too far. An employer who goes too far, may risk damaging the relationship of trust and confidence between the parties and so it may not be possible to rely on covenants in any event.
It is important not to forget basic principles – although the courts have recently been less strict on scrutinising every word of the covenant, this does not mean that they are upholding previously unenforceable covenants. Covenants should be no wider than necessary to protect the company’s legitimate business interests in relation to period, type of business or clients. Even where there is confidential information to protect, it must be clearly distinguished from other types of information to convince a court that it is worth protecting.
Now is the time to act
While the courts seem to be in favour of employers trying to protect their positions, now is the time to make sure that restrictions in senior employees’ contracts are as enforceable as they can be and that it is clear to those employees what the company is trying to protect. Don’t have a one-size-fits-all policy because this is likely to come unstuck. Do seriously consider picking a case and pursuing it if you genuinely believe a senior employee’s conduct is unacceptable and damaging. It is amazing the effect that an injunction might have on the conduct of other employees who may otherwise have been tempted to follow suit.
Key points to remember:
- Review senior employees’ restrictions and tailor make the covenants to suit the person
- Distinguish confidential information
- Be brave and take the strong cases further
Garden leave employment law
Non-dealing and non solicitation restrictions
Laura Livingstone, senior employment associate, Taylor Wessing