High Court Case leads to Confusion?

In June of 2016 the High Court gave a decision that has many employment lawyers and employers scratching their heads. Fox Whitfield was acting for two employees who were seeking a High Court declaration that restrictive covenants in their contract were not enforceable. One of their arguments was that the contracts were given to them after they had been working for some time and at that time no pay rise or other benefits were provided to them. I t was generally accepted law that “Post-termination restrictions introduced after an employee has started work were generally thought to be enforceable only where the employee is given a tangible benefit (e.g. a pay rise) in return”. However, in this case the High Court decided that was not necessary as simply continuing to employee the employees and introducing them to new clients was deemed to be enough. There has been much comment on this case: “The principles set out in Pro Cam are likely to be challenged (and the decision may yet be appealed).” I agree it will be challenged but this case is not going to be appealed. There are clear grounds to appeal but commercially it wasn’t deemed worthwhile.
No more nominal payments as consideration?
http://tinyurl.com/paagkzo http://tinyurl.com/pvwqp88 The full decision can be read here: http://www.bailii.org/ew/cases/EWHC/QB/2016/1304.html What, if anything, this case shows is that it is very hard to accurately predict what restrictive covenants may be deemed to be enforceable by the High Court and which may not. This uncertainty is unhelpful for both employers and employees. These cases are hugely fact and detail sensitive and anyone thinking about introducing them to employees, or enforcing them to trying to escape from them should take proper legal advice as early in that process as they possibly can. Paul Whitfield acted for James Pickwell and Molly Nichols in this case. Paul Whitfield is the Principal Solicitor at Fox Whitfield. Fox Whitfield can advise HR, employers and employees on disciplinary processes, procedures and unfair dismissal claims. We can also arrange meetings in the evenings or at weekends to work around your working hours. www.foxwhitfield.com 0161 283 1276 Employment Law Solicitors – Head Office in Manchester with offices located throughout the United Kingdom.

Protecting your Business from Your Employees with Restrictive Covenants

Update 30 July 2015: –

Top Gear: Clarkson, Hammond and May and their executive producer Andy Wilman to present a new show on Amazon.

Amazon Prime Video EU vice-president Jay Marine said: “Customers told us they wanted to see the team back on screen, and we are excited to make that happen.

“We can’t wait to see what Jeremy, Richard, James and the team will create in what is sure to be one of the most globally anticipated shows of 2016.”

The Restrictive Covenants in their contracts prevented them from making a show for a terrestrial UK broadcaster for two years. When it was drafted this may have been enough to protect the BBC but times have changed and the streaming of Television has grown. As a result the BBC was not protected from the team being able to launch a directly competitive program.

This does show how essential it is for employers to review Restrictive Covenants on a regular basis to ensure that they are still relevant and appropriate for the employees and the market they are operating within.

Recently a large law firm audited the contracts of their client and found that almost half had not audited the contracts of their senior employees to ensure they had adequate protection.

Given the current buoyant jobs market it is more important than ever to ensure that employees have up to date contracts in place to give businesses the best chance to prevent the loss of confidential information and clients if their senior employees leave.

Fox Whitfield are specialists in the both the enforcement of, and tactical evasion of restrictive covenants and confidentiality.

Paul Whitfield is the Principal Solicitor at Fox Whitfield and can be contacted on 0161 283 1276 or paulw@foxwhitfield.com

 

In the News today: –

Top Gear: Clarkson, Hammond and May ‘blocked from ITV show by BBC
http://www.telegraph.co.uk/news/celebritynews/11722706/Top-Gear-Clarkson-Hammond-and-May-blocked-from-ITV-show-by-BBC-contracts.html

This illustrates the importance and potential power of Post Termination Restrictive Covenants. Fox Whitfield are specialists in the both the enforcement and tactical evasion from the enforcement of restrictive covenants and confidentiality.

In this article we look at the law and practice surrounding this area of law.

Why do businesses need protecting from their own employees?

 The knowledge and relationships that employees develop can be some of the most valuable assets of a business. Employees can cause serious damage to a business by exploiting this to set up their own competing businesses or to gain a position with a competitor.

For the time they are employed employees have implied contractual obligations that restrict them to some degree. Employees must serve their employer with fidelity and in good faith and keep confidential information confidential. These obligations will fall away once employment ends unless the employer has put in place other restrictive covenants in their contracts of employment.

For example Fox Whitfield recently had a case where a senior employee had left to join a competitor to whom he passed confidential pricing information to enable them to secure contracts from his employer. As he did this during his employment this was a breach of contract and we were able to prevent him and his new employer from dealing with those customers. Had he waited to hand over the confidential data until the day after his employment ended there would have been little his employer could have done unless they were protected though the employment contract.

 

 What is a Restrictive Covenant?

A restrictive covenant is a contractual agreement that prohibits an employee from doing something, usually after they have left the business.

The most common types of restrictive covenants aim to prevent employees from:-

 

  • Making use of confidential information obtained during their employment;
  • Soliciting business from customers;
  • Dealing with customers;
  • Poaching other employees to join them.

 

Without express contractual terms an employer would normally not be able to stop an employer doing any of those things after their employment ended.

 

Are Restrictive Covenants Enforceable?

It is often said restrictive covenants are a waste of time as they are not enforceable. That is not the case. They are difficult to enforce but if they have been properly written they can be and this can provide invaluable protection to a business.

Restrictive covenants are enforced though the High Court. The starting point for all restrictive covenants is that they are void as they are in restraint of trade. The Courts will only enforce restrictive covenants that are necessary to protect the employer’s legitimate business interests and that go no further than is reasonably necessary to protect those interests.

Overly restrictive covenants will not be enforceable. It is generally better to have a narrowly written short restriction that can be relied upon than to have a wide restriction that lasts for a long time that may not be worth the paper is it written on.

 

 Legitimate Business Interests

 The legitimate interests which can be protected by restrictive covenants are:

 

  • Client/customer connections.
  • Confidential information.
  • Stability of the workforce.

 

“No further than is reasonably necessary” depends upon several factors:-

 

  • The seniority of the employee.
  • The amount of confidential information the employee has and how important it is that it remains confidential.
  • The value of the client relationships.
  • The geographical location of the employer’s legitimate business interests.
  • How long it would take a replacement to rebuild client relationships.

 

For example it might be reasonable to restrict a dentist from setting up a competitive practice within 5 miles of their current place of work for 12 months. That is if the employer can show the majority of their patients live in a 5 mile radius and generally come to the practice once a year for check up. However, 12 months would probably be too long a restrictive covenant for a hairdresser who sees their clients several times a year.

Generally speaking it is hard to justify restrictions of longer than 6 to 12 months.

It is very important to ensure that these clauses are tailored to your business and the employees to ensure they have the best chance of being enforceable.

 

Garden leave and Notice Periods

The simplest, and often most enforceable, way to restrict employees is though the use of notice period and garden leave. A garden leave clause in a contract of employment allows an employer to require the employee to spend all or part of their notice period at home. This means the employee cannot start work for another employer, breach confidentiality or approach customers during this time. The cost of this is that an employee must be paid for the period of garden leave.

Garden leave must be set out in the contract of employment and would need to be reasonable in terms of its duration.

 

Remedies for breach of Restrictive Covenants

The most common remedy sought to enforce Restrictive Covenants is an injunction.

An injunction is a court order that stops an individual from doing something, generally from continuing to breach their contract. If done properly it can be in place very quickly and can stop an employee in their tracks. Claims to recover financial losses caused by the breach of contract may also be possible.

Injunctions are expensive to obtain and employers should write to the individual first and give them an opportunity to agree to stop breaching the contract.

 

Deterrent Effect

Restrictions often have a useful deterrent effect, deterring competitors from poaching employees who may be unable to compete. Most cases do not get to court as an agreement about the restrictions can be reached. The contractual restrictions will be a starting point for negotiations.

 

Team moves

Groups of employees leaving together can be a very serious issue and restrictive covenants can be very useful in limiting the damage from this sort of attack. The Courts have recently enforced them in several cases to prevent the teams from actively competing for a period of time.

Once an employer becomes aware that there may be a team planning to leave, it is important to act quickly to try and minimise the damage. For employers looking to recruit teams, careful planning and execution will be necessary as there are many pitfalls to avoid.

 

Practical tips

  • Draft restrictive covenants carefully and tailor them to the particular circumstances.

 

  • For existing employees introduce new restrictions with a pay review or promotion.

 

  • If you think there is a breach gather as much evidence as possible and seek immediate legal advice. Delay can mean no injunction.

 

  • Restrictions must be regularly reviewed and new contracts issued on promotions with appropriate restrictions.

 

Paul Whitfield is the Principal Solicitor at Fox Whitfield and can be contacted on 0161 283 1276 or paulw@foxwhitfield.com

 

High Court Injunctions Faced by Employees

Employment Law Solicitors Fox Whitfield has just successfully advised a number of employees facing High Court Injunctions.

high court injunctions High Court Injunctions Faced by EmployeesA team of 15 employees were moving to a new employer when their ex-employer applied to the High Court for substantial damages against the key employees caused by the team move. They also applied for a High Court injunction to prevent them joining their new employer for a 12 month period. The case was listed for a 10 day trial before one of the Country’s leading employment judges.

After substantial work in a very short period of time employment law solicitors Fox Whitfield was able to settle the case without going to Court. The terms of settlement are confidential but Fox Whitfield was able to ensure the employees were freed from any injunction and able to join their new employer.

One employee said of Paul Whitfield:

The incredible amount of midnight oil that you burnt has meant that we can now get on with our jobs and lives… I don’t believe any other solicitor would have worked as hard as you“.

Paul Whitfield has extensive experience of advising employees and employers on injunctions and restrictive covenants. That experience and our dedication to providing the best possible service to our clients enabled this fantastic result to be achieved.

Getting legal advice at the earliest possible stage in these cases is essential. Please contact Paul Whitfield at paulw@foxwhitfield.com if you have any questions.