A good news story from the High Court

Restrictive covenants are often simply included in a contract of employment, to deter employees at the end of their employment. Employers generally recognise that it is not possible to strictly rely on the wording in the restrictive covenant. However, they hope that the employee will be prevented to a certain degree from acting in disregard of the covenant.

Eversheds recently advised a client on a successful High Court injunction application. Our client was seeking to rely on a restrictive covenant to stop an employee working in a niche sector with a competitor immediately following termination of their employment.

This is a very welcome outcome for employers as more recent High Court decisions had found such covenants to be void and unenforceable.

From Contract to Court

We worked closely with this client last year to strictly tailor their restrictive covenants to ensure they went no further than was necessary to protect the client’s business. This company makes significant investment in its staff and encourages staff to build strong and lasting relations with customers. As a result, the success of the company is closely linked to its people.

Naturally, it can be a struggle for any business when an employee leaves to go to a competitor, but for this company, a departing employee means the loss of key business.

We designed restrictive covenants which were limited in the following ways:

  • The employee could accept employment with a competitor so long as he/she did not work in a very specific area for two months following termination.
  • The employee was only restricted from poaching clients with which he/she had a direct relationship.
  • The restriction only applied to the Dublin area.

The employee in question moved to a competitor and changed his LinkedIn account to show he was working for the competitor in the same specific area. He also contacted key clients in an effort to move their business from the company.

Our client acted quickly and we notified both the former employee and the new employer of the restrictive covenants in the employment contract which were being breached. Within a matter of days, the former employee consented to a High Court order which affirmed the restrictive covenants. The new employer was also placed on notice that if future employees were engaged by it, the same action would be taken and the new employer would be included in any future proceedings.

This case is a welcome relief for employers who take the time to tailor their covenants to ensure that their legitimate business interests are protected.

Lessons Learned

  1. If you are concerned about the impact of specific employees departing your business, take time to analyse the particular risk that such a departure would pose.
  2. Draft your restrictive covenants as narrowly as possible to ensure that the former employee is restricted no more than is absolutely required. In this case, a tailored two month restriction was sufficient to allow our client ensure the relationship was protected once the employee had left.
  3. When an employee leaves, remind them of the restriction and take immediate action if this restriction is breached following termination.
  4. Gather any evidence of the breach as this will be critical in a High Court injunction application.