Many employers guard against unfair competition from former employees by including restrictive covenants within an employment contract. Some also include a right to place an employee on garden leave during any period of notice for the same reason.
The starting position is that restrictive covenants are an unlawful restraint of trade. A court only grants an injunction to force employees to abide by their terms if it chooses to exercise a discretion to by-pass the starting position. A key, but not the sole, factor in a court’s assessment is whether the relevant covenants are “reasonable”.
Enforcing garden leave involves a similar, but not identical, process.
Three recent cases highlight that the courts currently seem more willing to grant injunctions to enforce restrictive covenants and garden leave provisions. They also remind us of the key principles by which the reasonableness of a covenant is assessed.
- In Croesus Financial Services v Bradshaw, the High Court enforced a covenant prohibiting an employee from soliciting or dealing with his ex-employer’s clients for 12 months post employment. In a rare example of a case reaching a full trial, the duration of the covenants were found reasonable in light of the nature and frequency of contact between the employee and the clients and the fact that the duration matched the “industry standard”.
- In Coppage v Safety Net Security, the Court of Appeal found a non solicitation and non dealing covenant lasting for 6 months post employment was reasonable. Demonstrating that the shorter the covenant, the more enforceable it is, the Court of Appeal said if the restraint is “for only 6 months”, this was a powerful factor in assessing its overall reasonableness.
- In JM Finn v Holliday, the employer was able to force Mr Holliday to remain on garden leave for 12 months. It persuaded the court that it needed 12 months in order to appoint a replacement and gain influence over Holliday’s former clients. Also relevant was the fact that client meetings took place infrequently, such that it was difficult to assess the success of the replacement. It should be added that the court felt Holliday’s skills would not atrophy whilst on garden leave.
Ultimately, decisions in this area turn upon the facts of the particular case. What unites the above cases is a common theme. The employer more likely to be able to enforce a restrictive covenant is the one who (1) applied its mind to the subject and (2) had some reasonable basis for adopting the period fixed when incorporating the covenants into employee contracts.