A common refrain these days is the rather blasé 'covenants aren't enforceable'. Not so. Covenants naturally come to the fore on termination and it is worth knowing that employers can benefit from getting employees to affirm existing restrictive covenants when they leave employment.
A recent case indicates that, by getting the employee to affirm their employment contract covenants when they leave under a settlement agreement, the employee will then have the burden in court of establishing why the covenants should not be enforceable. This is a significant improvement for employers, where the usual position is that, in enforcement proceedings, they have to prove why covenants should not beunenforceable.
In Capgemini India Private Limited and another v Krishnan and others, former employees of Capgemini were asked to re-affirm their non-competition restrictive covenants in an undertaking on termination. The employees then sought to withdraw the undertaking when it became clear that a competitor would be willing to cover any legal costs incurred as a consequence of breach.
Capgemini issued proceedings for breach of the agreement and sought an interim injunction to prevent the employees from working for the competitor.
The High Court considered the usual presumption of unequal bargaining power did not apply here as the employees had left their employment and they had received legal advice on the termination agreement.
It was held that, by signing the undertaking, the employees had, in effect, reversed the burden of proof and it was now for the party seeking to avoid the agreement (the employees) to prove that it should be set aside, which the employees failed to do. This contrasts with the court's usual approach which is to assume covenants are unenforceable except to the extent that the employer can prove they are reasonably necessary to protect a legitimate business interest.
In a nasty little twist for the employer that shows what a rollercoaster ride covenant litigation can be, the court refused the injunction application as it considered that damages would be an adequate remedy. This does not alter the fact that an affirmation of covenants on departure will always be worth getting where possible.