The Courts have held that a 12 month springboard injunction preventing an employee from working for a competitor could be appropriate where the employee had breached an express term requiring him to notify his employer of job offers from competitors. It also held that a 12 month non-compete restrictive covenant was enforceable.
Courts may impose "springboard injunctions" to prevent ex-employees who have seriously breached their contracts from using the breach as a "springboard" to give them an unfair advantage over their former employers.
Mr Pellerey was employed by Dyson Technologies Limited ("DTL"), part of the group of companies ultimately owned by Sir James Dyson ("the Dyson Group"). His contract included the following clause:
"You agree that if any person approaches you in connection with offering you employment which is or potentially may be in competition with the Company or any Group Company then you will immediately inform the Company of that approach."
Mr Pellerey's contract also contained a 12 month covenant restricting him from working for competitors of DTL and the Dyson Group, and confidentiality provisions. The need for confidentiality was stressed during his induction course and throughout his employment.
After Mr Pellerey had been employed for about a year and a half, he was approached by a recruiter from Tesla Motors Inc. ("Tesla"), a leading manufacturer of electric cars based in the United States. After several stages of recruitment, he was offered a job with Tesla. The job offer was conditional upon his obtaining proof of a right to work in the United States. Mr Pellerey accepted the offer, and Tesla started the process of applying for a visa for him. About two months later, on 12 May, Tesla told him that this visa application was unlikely to be successful and they were looking at "other methods to get you a visa".
Mr Pellerey did not tell DTL about the conditional job offer, or his acceptance of it. At this stage, his work for DTL was on the design of electric motors for vacuum cleaners, and on a project comparing different electric motor technologies that might work in an electric bicycle. The Dyson Group did not produce electric cars.
However, on 27 May, events at DTL took an unexpected turn for Mr Pellerey. He was taken aside and told confidentially that Sir James Dyson intended that the Dyson Group should develop an electric car, and that he would be assigned to this confidential new project, "Project E". He and his colleagues were instructed immediately to take their laptops and move into a separate secure area. Over the next few days, he was told what his work was to involve, given a high level briefing on Dyson's intentions, including that the Project E team should provide "proof of concept", so that the DTL board could approve the next stage of research and development with a view to a Dyson electric car eventually going into production in about four years' time. Sir James Dyson also visited the team in the secure area and gave a talk to the team and explained the overall strategy for development of a Dyson electric car, including his intentions for the basic nature, size and price of the car, and various targets for written aspects of its performance. During his time working on Project E, issues of confidentiality and conflict of interest were brought to Mr Pellerey's attention.
Mr Pellerey still did not tell DTL about the job offer from Tesla.
In mid-June 2015, when he had been part of Project E for about two months, Tesla offered Mr Pellerey a job in Europe, avoiding the need for a US visa. He handed in his notice. As might be expected, the news was not well received by DTL, and several difficult meetings followed at which DTL insisted that he could not go to work for Tesla. Tesla agreed to help Mr Pellerey defend legal proceedings. During his communications with Tesla about this, Mr Pellerey forwarded a letter from DTL's lawyers, which referred to the fact that "Your proposed new employer is engaged in the same type of business as the business comprised in Project E…". By doing so, he inadvertently told Tesla that the Dyson Group was proposing to develop electric cars (although Tesla's lawyer denied that he had shown this to anyone else at Tesla).
DTL sought an injunction to restrain Mr Pellerey from working for Tesla for 12 months. It sought the injunction on two bases. Firstly, it contended that it was entitled to enforce the post-termination restraint in Mr Pellerey's employment contract. Secondly, DTL argued that it was entitled to a springboard injunction to prevent Mr Pellerey from enjoying the benefit in his new employment of the "illegitimate head start" that he had allegedly gained by breaching the obligation in his contract to notify DTL of any approach from a competitor.
Mr Pellerey denied that DTL was entitled to an injunction. He argued that the post termination clause was void and unenforceable as a matter of policy, that it did not apply on the facts, and that it would in any event be unjust for it to be enforced against him. He also denied that he had breached his contract or any duty that would give rise to the basis for a springboard injunction.
The judge granted DTL an injunction to restrain Mr Pellerey from working for Tesla for 12 months, subject to the condition that, if DTL were to discontinue work on an electric car at an earlier date, the injunction would cease to operate. This judgement does not establish any new law, but the judge's consideration of the enforceability of the clause does raise useful points for employers – see below.
The judge's comments about the springboard injunction were obiter, meaning that they do not set binding law. However, this is the first case to give detailed consideration to the enforceability of a notification term, and the appropriate remedy for its breach.
The parties agreed that the obligation to notify DTL was not triggered when Mr Pellerey was first offered a job with Tesla, because at that time he had no idea that DTL might be contemplating the development of an electric car. Mr Pellerey's lawyers argued that the obligation to notify only applied when the conditional job offer was first made by Tesla, and not at a later stage. DTL's lawyers considered that the obligation to inform DTL continued for so long as a job offer was open. The judge agreed with DTL, saying that the obligation to notify was triggered when Mr Pellerey was told about Project E. At that stage, it would be right to characterise Tesla as offering employment which was, or at the very least "potentially may be" in competition with DTL.
Mr Pellerey's lawyers then argued that the notification clause was invalid as a restraint of trade. They characterised the clause as having a "stifling effect" upon the freedom of an employee to prepare for future activities.
The judge did not agree. He commented that such clauses do not actually limit an employee's ability to take a new job. They just require employees to be open about their plans and to inform new employers of obligations to which they may be subject, thereby assisting the existing employer in knowing when it might need to enforce covenants and deterring new employers from inducing a breach of contract.
The judge also said that, even if such a clause were to be regarded as in restraint of trade, it is difficult to see why it should be other than reasonable if it operates as an adjunct to a restrictive covenant and/or a confidential information clause. This, the judge said, was particularly relevant here, because the clause was limited to a requirement to notify DTL of an approach from a competitor, rather than a blanket requirement to notify DTL of all approaches from potential new employers. The judge said that the facts of this case graphically illustrated a further reason why such clauses might be thought reasonable as between the parties. Notification that an employee has been approached and is considering an offer from a competitor will enable the current employer to take steps whilst the offer is pending to ensure that the employee does not have access to more confidential information.
The facts of this case were unusual, in that Mr Pellerey did not have confidential information relevant to Tesla when the job offer was first made: he only had access to this information when he became involved in Project E. The judge accepted DTL's evidence that he would not have been given access to the confidential information had he complied with the notification clause. In simple cases of breach of a notification clause, the judge said, it would be difficult to see why it would be an appropriate response to restrain the employee from taking up his new employment. This case was different: Mr Pellerey's breach meant that he learnt of confidential information concerning Project E to which he would not have had access had he told DTL about Tesla's job offer.
In principle, an injunction of this nature could extend until the information ceased to be confidential. However, DTL had limited its claim to the same period of the non compete restrictive covenant, so the judge did not have to consider this.
Mr Pellerey appealed to the Court of Appeal. The Court of Appeal dismissed the appeal on all aspects. However, it did disagree with the High Court in one aspect relating to the springboard injunction: it said that the obligation to notify Dyson of any job offers from competitors was only triggered at the point the job offer was made, if not relevant at that point it could not continue as long as the job offer was open (i.e. until Mr Pellerey heard about Project E / the point DTL was potentially in competition with Tesla). Despite the Court of Appeal disagreeing with the High Court on this point, it still remains that these clauses can in certain circumstance be effective.
What does this mean for employers?
Some useful reminders of dos and don’ts for employers arising out of the judge's consideration of the enforceability of the 12 month non-compete covenant are:
Check that the wording of restrictive covenants is unambiguous and protects what the employer needs to protect – no more, and no less.
DTL's consistent emphasis on confidentiality and its strict treatment of confidential information at all stages of employment were useful to it in its pursuit of the injunction, particularly in showing that a 12 month restraint was reasonable in the circumstances. Employers should be as clear and consistent as possible about what constitutes confidential information.
If it is possible to foresee that information will only remain confidential for a limited period, employers should limit the period of restriction to this period, as a longer period is likely to be unenforceable.
In many cases, this will not be foreseeable. However, the fact that a period of restraint bears no correlation to the period during which the information is confidential, will not necessarily mean that the period of restraint is unenforceable.
Employers can protect the business of group companies, so long as the employer's business is not commercially separate from those companies. Employers should draft covenants so that ex employees are only limited from rivalry with group companies with which the employee has had personal involvement.
Tesla had specifically instructed Mr Pellerey not to divulge confidential information to it, and had required him to disclose any restrictions on working for it. Recruiting employers may find it useful to do the same as a defence against claims of inducement to breach.
This case also shows that notification clauses can have teeth, and they may (in limited circumstances) be successful in seeking an injunction if an employee breaches an obligation to tell them about offers from competitors. This notification clause was more likely to be enforceable because it limited the job offers to be disclosed to offers from potential competitors. Employers should therefore consider reviewing contracts, if necessary, adding or amending notification clauses.
(This case was decided in 2015, but has only recently become publicly available.)