Contractual Disputes

When employees move from David to Goliath: the enforcement of post termination restrictions

The Court recently considered the enforcement of post termination restrictions in the context of an application for an interim injunction in EG Solutions Limited v Hughes and another [2016].

In this case, C was a small, specialist software company. D1 was employed by C but began working informally for D2 in breach of his employment contract with C. D2 was C’s much larger competitor.

After a month D1 handed his notice in to C and moved to work for D2 full time. At some stage D1 also forwarded some emails from his work email account to his personal one. Those emails were said to contain information that was confidential and sensitive to C and could therefore have a damaging effect on its business. Given the innovative nature of C’s business there was a real risk to it in the event that its pricing structure and technical know how fell into the hands of a competitor.

The employment contract between C and D1 included post termination restrictions, including a provision preventing D1 from working for any company that offered the same or similar services to D1 and within certain geographical areas. The restrictions were set to run for a period of 12 months.

C sought to enforce those restrictions against D1, and against D2 for inducing D1 to breach them.

On the face of it the restrictions were too wide to be enforceable; however the Court granted an interim injunction pending a full trial. This was based on:-

  • The specialist nature of C’s business;
  • The very real risk that C was exposed if its confidential information was compromised;
  • In the circumstances the covenants were likely to engage (however, the Court was not in a position to make that determination at the interim stage). There was therefore a triable issue that the Court would need to deal with in due course;
  • Therefore, and applying established principals, it was important that the status quo be maintained (with the status quo being judged as the situation immediately prior to the breaches of covenant by D1 and D2).

The reality is that in a case such as this the trial will probably not be needed on the basis that Claimant will have obtained the protection that it needs by virtue of the interim injunction.

This case demonstrates the power of restrictive covenants and that the Court will be prepared to enforce them if the circumstances justify it.

If you would like to discuss this or any other legal issue then please do not hesitate to contact Peter Brewer.