Spotlight On Recent Covenant Cases

There has been a glut of cases on restrictive covenants in the last few months which appears to indicate that the current economic climate means companies are more prepared to take action to try to enforce these to protect their businesses. We report on three of them.

Non-solicitation

Towry EJ Ltd v Bennett and ors is a case which involved financial advisers who moved to a competitor following the acquisition of their employer by Towry. Although it had no primary evidence of solicitation Towry brought proceedings on the basis that the "tidal wave" of clients (over 400) moving to the competitor meant that solicitation by its former employees must have taken place.

However, the High Court dismissed the claims on the basis there was no evidence of solicitation which it confirmed must involve some form of persuasion taking place. The competitor was in a strong position to defend the claim as a result of taking precautions such as seeking legal advice at an early stage, using a script to explain the impact and nature of restrictive covenants to the individuals during the recruitment process and paying for each of them to take legal advice on their restrictions. It also made it clear that any breach of restrictive covenants would result in the arrangement being terminated.

KEY POINT TO TAKE AWAY

This shows the importance of also including non-dealing covenants in employment contracts.

Springboard injunction granted to delay team move

The High Court in Clear Edge v Elliot and others granted a springboard injunction to prevent a team of three employees joining a competitor pending a speedy trial. A springboard injunction prevents a former employee and his/her new employer from gaining an unfair competitive advantage over the former employer as a result of the employee's breach, whether this is as a result of misuse of the former employer's confidential information or a pre-termination breach of fiduciary duties or breach of the duty of fidelity. It is a very effective remedy and will usually last for the length of time needed to neutralise any unfair advantage. In this case the injunction was granted because the evidence indicated past misuse of confidential information which the Court considered was likely to persist giving them and their new employer a competitive advantage if not restrained. There was also evidence that the employees had been in breach of their fiduciary duties and the duty of fidelity.

The evidence in this case included a...