Restrictive covenants and interim injunctions – like buses you wait ages for one and then two cases come along at once
18th November, 2021
The recent cases of Planon Ltd v Giligan and S Riddler Ltd v Wierzbicki are a useful reminder of the circumstances in which employers can enforce restrictive covenants against former employees.
Employers need to bear in mind when drafting employment contracts that they are adequately protected in the event the relationship with a former employee turns sour.
S Riddler Limited v Wierzbicki
What happened?
The employment contract contained a non-competition clause which required the employee to refrain from becoming involved in any capacity with competitors in the 12 months after the contract’s termination. The contract named the companies which the clause intended to restrict the employee from working for. The employee resigned in August 2021 and the following day began work for one of the named companies. The employer took the matter to court to enforce the terms of the restrictive covenant. The employee argued that the restrictive covenant was too wide to be enforced and that an injunction should not be granted.
What did the court decide?
The court had to look to see if damages would be an adequate remedy for the Claimant but found that they were not and that an interim injunction would be required to protect the Claimant’s interest. The court therefore granted an interim injunction enforcing the post-termination restrictive covenants against the former employee. Whilst the court recognised that there was a serious issue to be decided as to the width of the non-competition clause the Defendant could be compensated in damages if the Claimant’s case failed at trial. Also in cases such as this the court can list a “speedy trial” so that these issues are dealt with in a few short weeks as the court recognises that these cases need to be resolved as soon as possible/
Planon Ltd v Giligan
What happened?
The employment contract placed restrictive covenants on the employee for 12 months after termination of the contract. The covenants restricted the employee from enticing away business, being involved with competitors in any capacity, or providing goods and services to any restricted customer in competition with the employer. The employee resigned in July 2021 and was placed on garden leave until 23 August 2021. The employee was then hired by a competitor of the employer.
What did the court decide?
The court granted an interim injunction to prevent the employee from breaching post-termination restrictions in his employment contract. However, the court required the order to be modified so as to ensure that they were not unfairly oppressive, and that the former employee was not prevented from working during the term of the injunction. It was relevant in this case that the post-termination restrictions were very widely drafted. The court took a pragmatic approach limiting the scope of the injunction, until such time as matters could be properly and finally decided at trial.
What lessons can be learned from these cases?
There is an onus on employers to demonstrate that the restrictive covenant is fit for purpose and that it is reasonably necessary for that particular employee. Courts will look at the length of time the restrictive covenant exists for, the geographical reach and who the employee is prevented from working for. It is a balancing act and the courts will only grant an injunction if it is necessary to protect the employer’s legitimate business interests.
If you find yourself in a situation where you need advice on drafting employment contracts or where post-termination restrictive covenants are being contested, our team of employment lawyers and commercial litigators may be able to help. Contact one of our specialists to find out more.