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; the foundational case. Lord Macnaghten's test: all restraints of trade are prima facie void, but enforceable if (1) reasonable in the interests of the parties, (2) reasonable in the interests of the public, and (3) the restraint goes no further than necessary to protect the legitimate interest.
Restraint of trade; repudiatory breach; where the employer commits a repudiatory breach of contract which the employee accepts, the employee is released from post-termination restrictive covenants. The covenants do not survive the employer's own repudiation.
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.
Restraint of trade; legitimate interests; distinguished between the protection of trade secrets and confidential information (legitimate) and the mere prevention of competition (illegitimate). An employer cannot restrain an ex-employee from using general skill and knowledge acquired during employment.
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.
1 WLR 1 - Confidentiality; an employee cannot take copies of documents but can use memory/skill.
Restraint of trade; extended the doctrine beyond employer-employee relationships to commercial agreements. Any contractual restriction on trading freedom engages the doctrine, though the reasonableness assessment varies by context.
Restraint of trade; legitimate interests; client connections built up during employment are a protectable interest. Lord Wilberforce: a covenant 'must be no wider than is reasonably necessary for the protection of' the employer's legitimate interest. Privy Council.
1 WLR 1308 - Restraint of trade; copyright; a contract in restraint of trade is void if it is unfair and oppressive.
Injunctions; the foundational test for interim injunctive relief: (1) serious question to be tried, (2) damages not an adequate remedy for either party, (3) balance of convenience. Applied across all interim injunction applications including restrictive covenant enforcement.
1 WLR 1472 - Restraint of trade; reasonableness; a 12-month non-compete was reasonable for a senior director.
Ch 117 - Contract; confidentiality; trade secrets are protected post-employment, but general skill and knowledge are not.
Restrictive covenants; affirmation; prior repudiatory breach by the employer did not release the employee from covenants where the employee had affirmed the contract by continuing to work. Affirmation defeats the General Billposting release.
Confidential information; springboard injunctions; duration. The origin of the springboard doctrine. A managing director resigned to set up in competition, taking a copy of the company's card index of customers' names and addresses, photocopied in breach of his duty of fidelity while still employed. The Court of Appeal held that an interim injunction could restrain him from entering into or fulfilling any contract with anyone whose name appeared on the index while it was in his possession, whether or not he had used it to make the approach: having made deliberate and unlawful use of the employer's property, he could not complain that the law would not distinguish those he could have contacted lawfully from those he could not (Nourse LJ). The index as a whole had the necessary quality of confidence although its individual entries were public. A springboard injunction should not extend beyond the period for which the unfair advantage might reasonably be expected to continue; as the list could have been compiled legitimately in a relatively short time, one year from termination was the appropriate length.
Restraint of trade; trade secrets; defined 'trade secrets' vs 'skill and knowledge'.
Injunctions; negative covenants; where a covenant is clearly a negative stipulation (a promise not to do something), the court should ordinarily enforce it by injunction without a full American Cyanamid balance-of-convenience assessment. NICA.
Confidential information; springboard relief must go no further than restoring the parties to the competitive position they would have occupied absent the misuse; interim relief that overshot led to the claimant paying damages on its cross-undertaking. Also laid down safeguards for the execution of Anton Piller (search) orders.
TUPE; restrictive covenants; post-termination restrictive covenants transfer to the transferee under TUPE Reg 4. The transferee steps into the transferor's shoes and can enforce covenants given by the employee to the transferor.
Restrictive covenants; repudiatory breach; followed General Billposting, an employer's repudiatory breach releases the employee from post-termination restrictions. Applied in the context of insurance brokers subject to non-solicitation covenants.
Restrictive covenants; 'howsoever terminated' clauses; repudiatory breach. Covenants expressed to apply on termination 'howsoever arising' had been held necessarily unreasonable by the High Court, following D v M. The Court of Appeal allowed the employer's appeal: D v M, Living Design v Davidson and Scott J's obiter remarks in Briggs v Oates rested on a false footing, the assumption that an employee remains bound by a covenant after the employer's repudiatory breach. Under General Billposting v Atkinson, an employee released by such a breach is no longer bound at all, so reasonableness does not arise and words purporting to enforce the covenant after unlawful termination are 'merely writ in water'. Such words do not prevent an otherwise reasonable covenant being enforced where there has been no repudiatory breach. Phillips LJ doubted, obiter, whether General Billposting was consistent with later contract law.
Restrictive covenants; non-poaching; an employer has a legitimate interest in maintaining a stable, trained workforce, so covenants against soliciting staff are enforceable in principle. The covenant upheld was limited to directors and senior employees; a blanket restriction on employing former colleagues was regarded as indefensible at first instance and not pursued on appeal.
Restrictive covenants; prior breach; where the employer's breach is not sufficiently serious to amount to repudiation, the employee remains bound by post-termination restrictions. Only an accepted repudiatory breach releases the employee from covenants.
Restrictive covenants; damages; a claim for damages for breach of a post-termination covenant is not extinguished when the covenant period expires, the cause of action crystallises at the date of breach.
EWCA Civ 472 - Contract; restrictive covenants; a tribunal can enforce a covenant if it goes no further than necessary to protect interests.
Restrictive covenants; springboard relief; an injunction can be granted extending beyond the covenant period to prevent the employee from exploiting the unfair advantage gained by pre-departure breach of duty.
Restrictive covenants; non-solicitation; a non-solicitation covenant can protect both client connections and confidential information, it is not limited to one type of legitimate interest. The test is whether the restriction is reasonably necessary to protect the interest identified.
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.
Restrictive covenants; non-dealing; distinguished between non-solicitation (cannot approach) and non-dealing (cannot transact even if the client initiates contact). A non-dealing clause is more restrictive but can be reasonable where client connections are the primary asset.
Restrictive covenants; non-dealing; the distinction between non-solicitation and non-dealing clauses. A non-dealing clause prevents the employee from transacting with restricted clients regardless of who initiates the contact.
TUPE; restrictive covenants; a variation of contract terms (including restrictive covenants) by the transferee will be void under TUPE Reg 4(4) if the sole or principal reason for the variation is the transfer itself, even if the variation appears beneficial.
Restrictive covenants; know-how; recognised 'know-how' as a distinct protectable legitimate interest, separate from both trade secrets (Faccenda class 3) and client connections. An employer may protect specialist technical knowledge that gives it a competitive edge.
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.
EWCA Civ 1176 - Restraint of trade; non-solicitation; a clause preventing solicitation of clients is valid if reasonable and protecting a legitimate interest.
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.
Restrictive covenants; notice period injunctions; garden leave credit. A broker walked out mid-contract to join a competitor; the employer affirmed the contract, withheld pay because he was not ready and willing to work, and obtained an injunction against his working for the competitor. The Court of Appeal (Underhill LJ, Longmore and Gloster LJJ agreeing) dismissed his appeal. An employer holding an employee to a negative covenant during the notice period need not undertake to pay him as a condition of relief: the only principle in play is that an injunction must not compel him to return to work, which is fact-sensitive and turns largely on the length of the restraint [28]-[34], [40]. Garden leave earns no automatic credit against a post-termination restraint. The judge was entitled to weigh what would have happened had the employee worked out a structured handover, and a combined restraint of ten months from his last day at work, six of them post-termination, was not unreasonable [23]-[24], [48]-[50].
Restrictive covenants; garden leave; principles governing garden leave injunctions where no express garden leave clause exists, the court may imply a right to garden leave in appropriate circumstances.
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.
Restrictive covenants; scope; the employee's actual activities and responsibilities matter more than the contractual job title when assessing the reasonableness of a restriction.
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].
Restrictive covenants; injunctions; enforced a 12-month non-compete against a senior sales director. Approved blue-pencil severance to narrow an over-broad definition of restricted business. Restraint upheld protecting legitimate trade connections.
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.
Restrictive covenants; TUPE; covenants in a contract may need to be read with modifications after a TUPE transfer to reflect the changed identity of the employer. The covenant is not automatically void but must be construed purposively in the new context.
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.
Restrictive covenants; legitimate interest; an employer's late reliance on a different legitimate interest from that originally pleaded can still succeed, the covenant is valid if justified on any legitimate ground, not only the one first advanced.
Confidentiality; delivery-up; ordered return of privileged documents even after they were mentioned in open Tribunal proceedings.
An employer may rely at trial on a legitimate business interest not expressly articulated at the time the covenant was entered into, provided that interest genuinely existed at that time. Late reliance on a different interest does not automatically render the covenant unenforceable.
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.
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].
Restrictive covenants; non-compete; a 12-month non-compete in a solicitor's service agreement was upheld as reasonable given the firm's niche market, the difficulty of recruitment and the shelf life of the confidential information she held. The parallel covenant in her shareholders' agreement was too wide and was not enforced.
Restrictive covenants; shareholders' agreements; 18-month restrictions (non-compete, non-solicitation of customers and staff) against a joint managing director in a shareholders' agreement were upheld as reasonable, the court noting his privileged access to a significant amount of confidential information. Covenants in shareholder agreements attract less strict scrutiny than employment covenants.
Court of Appeal upheld severance of an over-broadly drafted confidential information clause at the interim injunction stage, retaining only the enforceable core. Severance is available at interim hearings without the need for a full trial of the merits.
Restrictive covenants; non-compete; approved 'blue pencil' severance of over-broad definitions of confidential information at the interim stage.
Injunctions; delay; an unexplained 4-month delay in seeking an injunction after garden leave ended was fatal to the application.
Injunctions; procedure; failure to order a speedy trial in a 12-month covenant case was an error of law; such cases demand expedition.
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.
Restrictive covenants; interim injunctions; where a negative covenant is clear and unambiguous, the court should ordinarily grant an interim injunction to enforce it without conducting a mini-trial on the merits. Followed Peninsula Securities.
Restrictive covenants; comprehensive modern review of enforceability principles. Addressed the interplay between non-compete, non-solicitation and non-dealing covenants, and the relevance of seniority and access to confidential information to reasonableness.
Restraint of trade; bonus clawback; a clause requiring repayment of bonus on resignation is a loyalty incentive, not an unenforceable restraint of trade.
Breach of confidence; damages; loss measured by what a 'willing buyer' would hypothetically pay to license the confidential information used.
Injunctions; confidential information; precision of drafting. Interim relief on an application to protect an energy consultancy's grid capacity estimation system. An injunction must make absolutely clear what it protects: 'including but not limited to' has no place in it. It is a fatal objection that the person enjoined cannot tell what he may and may not do [60]-[61]. The draft order, even as amended, was too wide, with non-exhaustive and circular definitions [63]. Against the new employer, BCC, relief was refused because undertakings to the court were sufficient [64]. Against Mr Ahmed himself an undertaking was not enough: an injunction was granted, confined to the ACES system and its methodology, with delivery up and a witness statement of compliance [65]-[69].
Fiduciary duties; non-directors; duty of fidelity; notice period. Sheldon J laid down no test. Whether an employee below board level owes fiduciary obligations turns on the factors collected in Bloch and Brearley, Employment Covenants and Confidential Information: seniority and autonomy in managing the business or part of it; autonomy or control over the specific obligation in issue; entrustment with property or confidential information; entrustment with initiatives such as negotiating a contract; whether the role leaves the employer vulnerable to abuse; and the nature of the breach, a bribe or secret commission pointing most readily to a fiduciary duty [341]. A desk head trading with the employer's capital owed fiduciary duties while trading, but the complaints concerned the notice period after he had stopped, so no fiduciary breach arose [342]. Genuine illness was a lawful excuse for not working the notice period, so a departure strategy built around it was not unlawful collusion [338]-[340]. A colleague with no genuine illness who refused to return breached his contract, and breached the duty of fidelity by preparing to compete with his new employer's help during notice [343], [348].
Solicitation; non-solicitation covenants; solicitation can occur via press release or collective appeal, not just direct person-to-person contact.
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.