Background

There have been a number of recent cases in which the Courts have upheld restrictive covenants against departing employees. Restrictive covenants may be contained in employment contracts, and in some cases contracts such as shareholder agreements may restrict employees. They are also bound by implied duties including the duty of fidelity towards their employer. Directors and some senior management will also owe fiduciary duties towards their employer.

Facts

Three employees of Kynixa left to join a competitor. One was a director and another was a senior employee. Both of these were found to owe Kynixa fiduciary duties. They were also bound by restrictions in a shareholder agreement which prevented them from competing with Kynixa and soliciting their customers and employees for 12 months from the date on which they ceased to be connected with Kynixa. The other employee was more junior and had no express post termination restrictions in her contract. Before they left all three employees misled Kynixa about their plans. They all resigned within one month of each other and joined a competitor, contrary to the information they had given to Kynixa about their plans. The Court upheld the covenants in the shareholders agreement as being reasonable in the circumstances, eventhough they were drafted widely. The two senior employees were also found to be in breach of their fiduciary duties and duties of fidelity.

Significantly, the more junior employee, who was not bound by any post termination restrictions, or any fiduciary duties, was held to be in breach of her duty of fidelity towards Kynixa. The Court held on the facts that her failure to inform Kynixa of the approaches made by the new employer to the employees was, on this basis, a breach of contract. It said that a crucial aspect of the duty of fidelity which is implied into every contract is loyalty, and that her omissions were not consistent with that concept.

Effect on employers

This is a significant case in that a relatively junior employee with no express restrictions in her contract was found to be in breach of contract for failing to inform her employer of plans she knew were taking place regarding a team move. It would seem to strengthen the position for employers who have not put in place adequate post termination restrictions and who, on the facts, are able to assert that an employee has acted in a disloyal manner. Ultimately the Courts will decide on this matter based on the facts of a particular case.

Kynixa Limited v Hynes and others 2008 EWHC 1495