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 cross-undertaking 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 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 ex-employees 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.