We consider the issue of whether, in  the ever expanding world of publicly  available information, an employer  can protect its connections with its  customers via restrictive covenants.  In the case of East England Schools  CIC (trading as 4MY Schools) v (1)  Palmer (2) Sugarman Group Limited  [2013] EWHC 4138, the key question  was whether the claimant, a  recruitment consultancy working in  the education sector in Essex, could  enforce restrictive covenants in its  employees’ contracts that protected  relationships with clients.

Facts

The claimant was a recruitment  agency, working in the education  sector. The first defendant, Ms  Palmer, was employed by the  claimant as a recruitment consultant,  primarily matching teachers with  vacancies at secondary schools  in Essex.

Ms Palmer’s contract of employment  contained covenants not to solicit or  deal for a period of six months after  the ending of her employment with  the candidate teachers or client  schools with whom she had dealt in  the last 12 months of her  employment.

In January 2013 Ms Palmer was  offered a new job with the second defendant, Sugarman Group Ltd  (Sugarman), covering the same area  that she had worked on previously  for the claimant.

Very shortly after Ms Palmer started  work with Sugarman, the claimant  received information that she was  breaking the terms of her restrictive  covenants by soliciting or dealing  with the clients and teachers that  she had previously dealt with for the  claimant. The claimant requested  Ms Palmer to give an undertaking  to comply with the restrictive  covenants. Ms Palmer complied  and in addition provided an affidavit  stating that she would ‘abide by the  terms of the undertakings’.

The claimant later received further  information leading it to believe that  Ms Palmer had committed further  breaches of her restrictive covenants.  Subsequently, it issued proceedings  against Ms Palmer and Sugarman  and made an application for an  interim injunction. The application was dealt with by way of a consent  order, further undertakings from Ms  Palmer and Sugarman and a crossundertaking in damages by the  claimant. Directions were given for  a speedy trial.

The issues

The key issue for the High Court  to consider was whether, if  undertakings had not been given  by Ms Palmer and Sugarman at the  application hearing, an injunction should have been granted. If this  was found, the Court would have to  further consider whether the claimant  was entitled to damages or any  other relief.

In considering these points the High  Court had to establish, amongst  other things, whether the restrictive  covenants were legally enforceable  and subsequently whether there  was a breach of those covenants by 

Ms Palmer. Additionally, it had to  consider whether Ms Palmer was  induced by Sugarman to breach  the covenants.

If the above was made out, the High  Court would then consider if it would  have been right to grant injunctive relief against Ms Palmer or  Sugarman.

The High Court decision

The High Court considered all the  facts and applicable case law before  finding that the restrictive covenants  were enforceable.

The High Court acknowledged that  Ms Palmer and Sugarman had made  strong cases that the proprietary  interest the claimant claimed did not  exist. This was on the basis that  there was no close relationship  between Ms Palmer and the schools  or teachers. Additionally, they had  argued that all relevant information  was now in the public domain,  therefore could not be confidential  to either party.

The Court disagreed and said that  the building of relationships with  clients was crucial for Ms Palmer  and that those relationships, and the  information attained through building  them, may be a deciding factor in  whether or not a particular  recruitment agency was used.

Secondly, the High Court was  also satisfied that the six month  prohibition on canvassing or soliciting  clients and candidates was  reasonable, even in the light of the  fast moving market of recruitment  consultancy employees.

On the facts the High Court also  found that Ms Palmer had breached  the covenants and further was  induced to do so by Sugarman.  Damages were ordered to be paid  to the claimant by y both Ms Palmer  and Sugarman.

Comment

This case confirms that employers  can protect their business interests  and relationships, even if some of  that information is in the public  domain. It is likely that, with the  ever-increasing amount of publicly  available information, stronger  arguments will be made by exemployees that the information the  employer is seeking to protect is not  a proprietary interest, and therefore  would not come under the remit of  a restrictive covenant.

The Court confirmed that  relationships built by employees  with clients are a key element to  establishing a proprietary interest  and consequently warrant protection.  Therefore, if you have a client  relationship to protect that is based  on a relationship between an  employee and a client, it is likely  that a restrictive covenant will still  be an effective tool for you.