Protecting information and staff relies on employers’ careful drafting of
covenants, as recent cases indicate
Three recent cases provide guidance on the way courts view restrictive
covenants and protection information.
In Turner v Commonwealth and British Minerals Turner had been an employee
and director of the company. After termination of his employment, Turner
concluded a severance agreement with the company, as part of which he agreed
not to be involved – directly or indirectly – for 12 months in any business
which competed or was likely to compete with any business carried on by the
company and in which Turner was involved while employed by them.
The Court of Appeal gave the following guidance:
• In interpreting covenants, if a particular construction leads to the view
that the clause is unenforceable, then an alternative construction that does
not lead to that conclusion ought, if legitimate, to be preferred.
• It was legitimate to take into account the fact Turner was paid extra for
the covenant he agreed to sign; he was well advised by lawyers and there was no
inequality of bargaining position.
None of the above factors, however, relieved the company of its obligation
to justify a clause in restraint of trade.
In this case, the Court of Appeal held that the covenant was enforceable.
International Consulting Services (UK) v Hart concerned a covenant in Hart’s
contract of employment. It said he could not, for a period of 12 months,
solicit or deal with any client of the company or any prospective clients who
had been in negotiations with the company during the 12 months before the
termination of his employment. The question was whether the covenant was too
wide because of the uncertainty in determining what level of contact with
prospective customers amounted to "negotiations".
The court, acknowledging that it could be difficult in some cases,
nevertheless felt that usually it would be clear on the facts and where it was
not, it was up to the court to decide as part of the process of interpreting a
contract.
The word "contact" with prospective customers meant some
substantial interaction but could cover business discussions which took place
some years before the employee left the company with a prospective customer who
did not then become a customer of the company.
This is interesting in that, on the face of it, the covenant was quite wide,
but the court still felt it was reasonable because it was legitimate for this
particular company to treat connections with customers arising from
negotiations as part of its business interests which should be protected. While
this does not mean a general rule that restraints in respect of prospective
customers will be upheld, it may well be of use to employers who have to place
the same degree of importance on contact/negotiations with prospective
customers or clients.
Finally, in SBJ Stephenson Limited v Mandy the High Court looked at whether
a non-disclosure clause restraining an insurance broker from disclosing company
information was too wide. Mandy argued information innocently learned by an
employee in the course of his employment cannot be regarded as confidential
information to be protected by law.
The court disagreed. The manner in which the information is learned – either
deliberately to damage the employer or innocently – is not the determinative
factor. The test is whether the knowledge is "objective", which is
the property of the employer, or "subjective", which is the
employee’s own property. This has to be decided on the facts of the case and is
not governed by whether an employee is able to remember it.
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The court in this case also upheld a covenant restraining Mandy from
soliciting any employees of the company.
Sarah Lamont is a partner at Bevan Ashford
