A confidentiality covenant may be enforced by Court order – the employee’s undertaking not to divulge trade secrets may not be enough to protect the employer’s business interests; a restriction banning an employee from working for named competitors for six months after termination of employment may also be upheld as not being too wide or too vague to be enforceable.
In the case of Intercall Conferencing Services v Steer, the employer’s business was that of international conference calling, audio, video, web and event conferencing. The employee’s contract included an express confidentiality clause and also a restrictive covenant that he would not work in any capacity for 5 named competitors of his employer for six months after termination of his employment. When he left to work for one of those competitors he gave a voluntary undertaking not to disclose company confidential information to them but he disputed the enforceability of the non-compete covenant.
He had been head of training and personnel development and, at the time he left, was also acting head of direct sales. As such he had access to three types of highly confidential information – the sales team’s commission plans, cost prices for the company’s services, and client information held on a database known as ‘Goldmine’. The company argued that, given his seniority and industry knowledge there was real risk that he might break his confidentiality undertaking inadvertently.
He argued that he could not be expected to have remembered all the information to which he had had access and some, in particular customer-related, information, could not be classified as confidential in any event.
The Court considered that, where there is difficulty in establishing what is or is not confidential information, a non-competition clause may be the most satisfactory form of restraint, provided that it is reasonable in extent and duration. It was reasonable to enforce this non-competition clause because the employee could be compensated for six months earnings but, if the covenant was not enforced, the employer could easily suffer a loss of business that could be difficult to calculate. He was only prevented from working for 5 named companies and could work anywhere else if he wanted. The period of six months was not too long.
Points to note
# One of the reasons that the employee gave for suggesting that the six months non-compete period was too long was that he had already had one month’s ‘garden leave’ while working out his notice. The Court disagreed so he was effectively prevented from starting to compete with his former employers for 7 months. Restrictive covenants and garden leave clauses are useful commercial tools but must be written into the employment contract and must be reasonable in the particular circumstances of the case if they are to be enforceable. As can be seen from this case, a non-compete restriction may be used to enforce a confidentiality covenant. We are happy to advise on the drafting of such clauses.
# The employer moved swiftly in this case to instruct lawyers to obtain an interim injunction to enforce the confidentiality clause and restrictive covenant. This was essential to their success. Once the employee has started working for a competitor the Court will be less willing to enforce a covenant that will adversely affect a third party’s business. Also, the restricted period runs from the date of termination of the employment contract. The Court will be less likely to enforce a covenant if it only has a few weeks to run.