Restrictive covenants are a useful tool in protecting your business. Such provisions may include a restriction on an employee’s ability to work for a competing business; a restriction on an employee’s ability to solicit or work with your clients or contacts; and a restriction to prevent the poaching of your key staff. If an employee acts in breach of their restrictive covenants, an employer may have the option of seeking injunctive relief from the courts to prevent that employee from acting in breach.
The first step is usually an interim injunction and is sought by the employer to provide immediate relief from the breach continuing until a full hearing. In considering whether to grant an interim injunction, the following principles (the American Cyanamid principles) will apply:
- The claimant must show that there is a serious issue to be tried. This means demonstrating to the court that the covenant is reasonable and enforceable, and producing evidence of the breach. It does not, however, require the court – at this interim stage – to determine the prospects of success of the claim.
- The claimant must show that injunctive relief is necessary to protect its business and that damages are not an adequate remedy for the breach. This is usually demonstrated by showing that the breach is ongoing and causing unquantifiable damage to the business.
- The claimant must show that it will be more prejudiced if the court did not grant the injunction compared to any prejudice the employee would suffer if the injunction was granted – known as the balance of inconvenience.
It was the balance of inconvenience that was recently considered in the case of Affinity Workforce Solutions Limited v McCann & others. In this case, the Claimant, a recruitment business in the education sector, sought to enforce its restrictive covenants against five former employees who had defected to work for a competing business, Tradewind Recruitment Limited.
Upon learning of their new employment, the Claimant initially sought undertakings from the former employees for surety that they would not use the Claimant’s confidential information and would not solicit or deal with the Claimant’s clients or candidates. Those undertakings did not seek to prevent the former employees from being employed by Tradewind.
Despite negotiating and agreeing the form of wording for the undertakings, the Claimant subsequently decided to apply for an interim injunction to enforce the restrictive covenants – including the non-compete restriction. The issue to be determined at the recent hearing was whether the former employees should be restrained from being employed or engaged by Tradewind until the expiry of the six month restricted period.
Mr Justice Snowden found that the claim passed the first two tests of the American Cyanamid principles, which was that there was a serious issue to be tried and damages would not be an adequate remedy. However, the application failed on the last principle, with Snowden J finding that the balance of inconvenience fell in favour of the Defendants, not the Claimant – that is to say, the former employees would suffer the greater prejudice if the interim injunction was granted.
The key reasoning behind his decision was the fact that, for a significant period of time after it had discovered the breach, the Claimant had pursued undertakings that did not, in fact, include a restriction on the former employees’ employment by Tradewind. During the course of negotiations over the scope of the undertakings, the Claimant had agreed a list of customers and candidates who were covered by the non-solicitation and non-dealing restrictions. In reaching this agreement, Snowden J concluded that the Claimant had accepted that the former employees could be relied upon to honour the undertakings they were prepared to give. There was no sensible explanation for the Claimant’s sudden change of position. Accordingly, there was no justification for imposing the wider non-compete covenant on the Defendants.
This case emphasises the importance of determining the approach towards the enforcement of restrictive covenants from the outset. If an employer takes a more relaxed approach, or determines that certain covenants are less important than others, it will need compelling evidence to justify any change of position at a later date. As always with business protection matters, we recommend that you speak to us immediately upon becoming aware of any problems so that we may guide you on the appropriate steps to take.
For further advice on the above topics, please call us on 01483 543210 or alternatively email firstname.lastname@example.org