Court Of Appeal Ruling Highlights Challenges In Obtaining Interim Injunction To Enforce Non-compete

• Published date: 16 June 2022
• Subject Matter: Employment and HR, Litigation, Mediation & Arbitration, Employee Benefits & Compensation, Trials & Appeals & Compensation
• Law Firm: Herbert Smith Freehills
• Author: Ms Anna Henderson and Nick Wright

The Court of Appeal has recently emphasised the importance of speed if an ex-employer wishes to obtain an interim injunction enforcing a non-compete covenant. The longer the delay, the more likely it will be that the employee can persuade the court that the damage to the ex-employer's interests has already been done and the status quo favours allowing them to continue in their new job (rather than the grant of an interim injunction preventing them from working). The ruling also suggests that it may be more difficult than previously thought to obtain this type of injunction, as the Court rejected the argument that damages should normally be seen as an adequate remedy for the employee unless there are exceptional circumstances. Following this judgment, unless the employee is a very wealthy individual or the ex-employer is willing to offer to continue to pay the individual during the period of restraint, damages are likely to be viewed as inadequate and this may well tip the balance against granting an injunction.

In Planon v Gilligan, G joined a competitor 11 days after leaving his employment with software company P. P applied for an interim injunction to enforce a 12 month non-compete covenant 7 weeks later; this was refused at first instance and again on slightly different grounds at an appeal heard 5 months later.

An interim injunction is a discretionary remedy pending a full hearing (at which the enforceability of covenants, whether there has been a breach and the appropriate final remedy will be determined), aimed at maintaining the status quo until that (usually expedited) hearing. The applicant must show there is a serious issue to be tried in terms of enforceability and breach and the court will then consider the balance of convenience, including whether damages would be an adequate remedy for each party; where the factors are evenly balanced, the court should preserve the status quo.

The Court of Appeal in this case made clear that, when considering whether to grant an interim injunction, there is no presumption in favour of interim injunctive relief simply because the covenant is thought to be reasonable. The principle that a party would ordinarily be entitled to an injunction if a non-compete clause was enforceable, subject to the court's residual discretion where exceptional circumstances applied, was relevant at the final hearing where enforceability would have been established definitively, but not at the interim stage.

The Court held that in...