When An Employee Joins The Competition

Where an employee leaves to compete against the employer there are four possible causes of action the employer could seek to rely upon. Firstly, the employer might point to a restrictive covenant and seek to enforce that. Secondly, the employer might seek to rely on a confidentiality clause in the contract of employment. Thirdly, the employer might argue that the former employee is using trade secrets learnt during the course of employment. Fourthly, the employer might seek to argue that the employee has interfered with intellectual property rights be it copyright, design, trade marks or patents.

Restrictive covenants

Restrictive covenants are "covenants in employment contracts that restrict or deter an employee from freely exercising his trade, profession or calling". They can take many different forms. A non-solicitation clause would prevent the employee from soliciting work from customers of the employer for a period after the termination. A non-poaching clause would prevent an employee employing other employees of the employer for a period after the termination. A non-compete clause would require the employee not to work in a competing business for a period after termination. The latter is the most restrictive and therefore more difficult to pass through the Courts.

No matter what the type of restrictive covenant, it is for the party asserting the clause to prove it is reasonable in terms of time, space and subject matter.

The courts have a number of occasions amended the restrictive covenant to a be more limited in time, space or subject matter. In Lennon v. Doran (Unreported High Court (Carroll J.) 20th February 2001) the court imposed a definition of territory in a share purchase agreement as an area in which the business was being carried out at the time of the share transfer. The court reduced the non-compete term from 2 years to 1 year.

The courts seem quite willing to enforce a non-solicitation clause for a period of 6 months to 12 months. In Net Affinity v. Conaghan and Revemac Ltd. 2011 ELR 11 the first defendant left the plaintiff company to join the second defendant which were companies providing hotel booking websites. The court refused to enforce a 12 month non complete clause contained in the contract of employment but the court did grant an injunction in the form of a non-solicitation clause (an order preventing the defendant from soliciting, approaching or dealing with any existing clients of the plaintiff for a period of 12 months) against the first and second defendants even though same was not provided for in the contract.

In AIB v. Diamond (Unreported Clarke J High Court 14th of October 2011) the first six defendants (hereinafter the personal defendants) were former employees of the plaintiff companies who established the seventh, eighth and ninth defendant companies (hereinafter the corporate defendants) to work in competition with the plaintiff companies. There was no restrictive covenants in the personal defendants contract of employment. IT specialists for the plaintiffs had uncovered emails and attachments which some of the defendants had taken from the plaintiffs. It was alleged...