Post-termination covenants, the interests they may legitimately protect, and the limits of enforceability. Nordenfelt v Maxim Nordenfelt Guns & Ammunition Co Ltd; Tillman v Egon Zehnder Ltd.
Restraint of trade; geographic scope; a 25-mile radius restriction for a door-to-door canvasser was grossly wider than necessary to protect the employer's interest. Excessive geographic scope renders the whole covenant void; the court will not rewrite it. [Summary not yet checked against the judgment.]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restraint of trade; severance; where a single covenant restrains multiple activities forming a single indivisible restraint, the court cannot sever individual parts, the restriction stands or falls as a whole. Contrasted with Nordenfelt where severable. [Summary not yet checked against the judgment.]
Overruled by Tillman v Egon Zehnder Ltd [2019] UKSC 32 (2019-07-03)
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Ch 117 - Contract; confidentiality; trade secrets are protected post-employment, but general skill and knowledge are not. [Summary not yet checked against the judgment.]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants; group companies; severance. The Court of Appeal (Maurice Kay LJ) upheld a 12-month non-dealing covenant given to a holding company whose clients were in fact served by a subsidiary. Construction is not to be inhibited by a purist approach to corporate personality: the subsidiaries were the instrumentalities through which the group ran its business, so the covenant protected the group's client connection and the covenantee had a legitimate interest [16]-[23]. Twelve months was not arbitrary where the employer needed time to rebuild client trust after key advisers left [29]. The three-stage severance test from Sadler v Imperial Life was adopted: the offending words must be removable without adding to or modifying what remains, the remaining terms must be supported by consideration, and removal must not change the character of the contract [40]-[44]. Restated by the Supreme Court in Tillman v Egon Zehnder. [Summary not yet checked against the judgment.]
Approved by Tillman v Egon Zehnder Ltd [2019] UKSC 32 (2019-07-03)
The Supreme Court took the three Beckett criteria one at a time.
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants; team moves; comprehensive modern review of covenant enforcement principles in a team-departure case. Addressed garden leave credit, springboard injunctions, duties of fidelity, and the interplay between express covenants and implied obligations. [Summary not yet checked against the judgment.]
“The Court must assess the actual advantage gained by wrongdoers as a result of their unlawful activities and grant appropriate relief. Springboard injunctive relief is for unlawfully ‘stealing a march’ on competitors. The essential question is therefore: how much of a march have the Defendants in this case, in fact, stolen on the Claimant as a result of their wrongdoing? This depends on both the length and tensile strength of the ‘springboard’ itself and gauging the relative advantage gained by its use.”Haddon-Cave J, at [284]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants; interpretation; a poorly-drafted covenant that on its natural construction did not cover the activity the employer sought to restrain was unenforceable, the court will not rewrite a covenant to give it a meaning the words cannot bear, even if the parties' intention was clear. [Summary not yet checked against the judgment.]
“It was not for the judge nor is it for this court to re-make the parties’ clause 19 bargain. Prophet made its clause 19 bed and it must now lie upon it.”Rimer LJ, at [38]
Penalty clauses; restraint of trade; reformulated the test: a clause is enforceable if it protects a legitimate business interest and is not exorbitant or unconscionable. Departed from the 'genuine pre-estimate of loss' test. Applied to restrictive covenant forfeiture and liquidated damages provisions.
Restrictive covenants; worldwide scope; a worldwide non-compete clause can be reasonable where the employer's business is genuinely global and the employee operated at that level. Geographic scope assessed by reference to the actual scope of the business and the employee's role. [Summary not yet checked against the judgment.]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants; construction; validity. Foskett J applied the three-stage approach in TFS Derivatives v Morgan: construe the covenant, ask whether the employer has shown a legitimate interest requiring protection, then whether the restraint is no wider than reasonably necessary [18]. The onus of establishing reasonableness is on the employer [17]. On construction, where one reading would render the clause unenforceable and another legitimate reading would not, the latter is preferred, per Turner v Commonwealth and British Minerals [20]: ambiguity is resolved in favour of validity, not narrowly against the employer. Read as a whole, a post-termination restriction on 'business activity' did not catch the limited shareholding the contract permitted during employment, so no blue pencil was needed [126]-[130]. A junior broker's non-compete, garden leave taken into account, was held valid and enforceable with the other restrictions [119], [138]. [Summary not yet checked against the judgment.]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restraint of trade; severance; non-compete. The Supreme Court (Lord Wilson, with whom Lady Hale, Lord Kerr, Lord Briggs and Lady Arden agreed) held that a covenant not to be 'interested in' a competing business extends to holding shares, so the clause fell within the restraint of trade doctrine and, so construed, was unreasonably wide; but that the offending words could be severed. Attwood v Lamont was overruled and the three criteria adopted in Beckett Investment Management Group Ltd v Hall endorsed: the unenforceable words must be removable without adding to or modifying what remains, the 'blue pencil' test [85]; the remaining terms must be supported by adequate consideration, rarely an issue where the employer sues [86]; and the third criterion is better expressed as whether removal of the provision would not generate any major change in the overall effect of all the post-employment restraints in the contract, which it is for the employer to establish [87]. The words 'or interested' were severed and the covenant enforced [88], reversing [2017] EWCA Civ 1054. [Summary not yet checked against the judgment.]
“The third criterion is that “the removal of the unenforceable provision does not so change the character of the contract that it becomes ‘not the sort of contract that the parties entered into at all’”. This is the crucial criterion … But I suggest, with respect, that the criterion would better be expressed as being whether removal of the provision would not generate any major change in the overall effect of all the post-employment restraints in the contract. It is for the employer to establish that its removal would not do so.”Lord Wilson; Lady Hale; Lord Kerr; Lord Briggs; Lady Arden, at [87]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants in employment contracts must be construed purposively with regard to the commercial context. Where an employee has moved to a materially different sector, the court should consider whether the covenant's purpose is actually engaged, rather than enforcing it mechanically according to its literal terms. [Summary not yet checked against the judgment.]
Breach of confidence; lawful excuse; the Court of Appeal considered the scope of the breach of confidence action in the context of commercially confidential information. The case establishes that a 'lawful excuse' (such as a protected disclosure under the ERA whistleblowing regime) can provide a defence to a breach of confidence claim. Applied in GQA Qualifications Ltd v Clayton to determine whether disclosures made in the course of obtaining legal advice defeated a breach of confidence action. [Summary not yet checked against the judgment.]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants; interim injunctions; non-compete. The Court of Appeal dismissed the employer's appeal against the refusal of an interim injunction enforcing a 12-month non-compete. The judge's reasoning on enforceability could not stand: he had not applied the three-stage test of construction, legitimate interest and no wider than necessary, and had weighed only the effect on the employee [84]-[91]. But by the appeal the employee had been in post seven months with four to run, so the balance of convenience was against enforcement [99]-[100]. The burden of showing a covenant reasonable lies on the employer [84]. The rule in Doherty v Allman that a valid negative covenant is ordinarily enforced by injunction applies after trial and has no relevance at the interlocutory stage [96], [105], [112]. An interim application is not the occasion for a definitive ruling on enforceability: the court may make some assessment of the merits within the balance of convenience, and an employer wanting a decision should seek a speedy trial [102]-[104], [109]-[110]. [Summary not yet checked against the judgment.]
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References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restrictive covenants; confidential information; severance. The Court of Appeal upheld the severance of an over-broadly drafted definition of confidential information at the interim injunction stage, leaving the enforceable core standing. Severance may be applied on an interim application without a full trial of the merits. [Summary not yet checked against the judgment.]
Cites
References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Restraint of trade; bonus clawback; a clause requiring repayment of bonus on resignation is a loyalty incentive, not an unenforceable restraint of trade.
Injunctions; procedure; failure to order a speedy trial in a 12-month covenant case was an error of law; such cases demand expedition.
Cites
References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Where restrictive covenants are clearly drafted and unambiguous, the court will not conduct a mini-trial on the merits at the interim injunction stage. American Cyanamid applies and a claimant with a strong case on the face of the covenant is well-placed for interim relief. [Summary not yet checked against the judgment.]
Breach of confidence; damages; loss measured by what a 'willing buyer' would hypothetically pay to license the confidential information used.
Cites
References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.
Non-compete; competition; no breach where a client moved services 'in-house', the client had effectively left the marketplace and was no longer a competitor.
Cites
References found in the judgments’ text, with the number of paragraphs in which each case is mentioned. Not a classification: how a case was treated is recorded under Later history.