Introduction

The case of Planon Ltd v Gilligan ([2022] EWCA Civ 642) addresses the enforceability of non-compete covenants embedded within employment contracts. Planon Limited ("A") sought to enforce a 12-month non-compete clause against Mr. Gilligan ("R") following his termination, preventing him from engaging with competitors in the software market. The central issues revolved around the reasonableness and necessity of the restraint of trade provisions, the protection of confidential information, and the balance of convenience between the employer and the former employee.

Summary of the Judgment

The Court of Appeal critically reviewed the decision of the initial judge, Edwin Johnson J, who had refused Planon Limited's applications to enforce the non-compete covenant and to obtain disclosure of R's current employment contract and job description. The appellate court found faults in the initial judge's approach to assessing the enforceability of the non-compete clause, particularly its preliminary assessment without fully applying the established legal tests. However, considering the progression of the case and the temporal factors involved, the court ultimately upheld the lower court's decision not to enforce the covenant at that stage.

Analysis

Precedents Cited

The judgment references several pivotal cases that shape the understanding and application of non-compete covenants in employment law:

• American Cyanamid Co v Ethicon Limited [1975] AC 396: Established the three-stage test for granting interim injunctions: the existence of a serious issue to be tried, inadequacy of damages as a remedy, and balance of convenience.
• Herbert Morris Limited v Saxelby [1916] AC 688: Highlighted that non-compete clauses preventing competition are only enforceable when they protect trade secrets or customer connections, not mere competition per se.
• Coppage v Safety Net Security Limited [2013] EWCA Civ 1176: Outlined that restrictive covenants must protect legitimate business interests and be no wider than necessary.
• Lansing Linde Limited v Kerr [1991] 1 WLR 250: Demonstrated that overly broad geographic restraints (worldwide in this case) are likely unenforceable.
• Office Angels v Rainer-Thomas [1991] IRLR 214: Emphasized the importance of clearly identifying the interests being protected by restrictive covenants.
• Littlewoods Organisation v Harris [1977] 1 WLR 1472: Affirmed that short-term covenants extending beyond what is reasonably necessary can be upheld.
• Doherty v Allman (1878) 3 App Cas 709: Clarified that interlocutory injunctions do not involve a full assessment of contractual covenants' enforceability.

Legal Reasoning

The appellate court scrutinized the initial judge's methodology in evaluating the non-compete covenant's enforceability. The primary critique was that the judge failed to apply the correct legal tests, specifically neglecting to assess the covenant's meaning, the employer's legitimate business interests, and whether the restraint was no broader than necessary. Instead, the judge focused predominantly on the potential impact on R's employment prospects, which is not supported by legal precedent.

Furthermore, the appellate court noted that the initial judge did not adequately consider Planon's position or the detailed arguments supporting the covenant's reasonableness. This oversight led to an improper preliminary assessment, undermining the decision to deny the injunction.

Impact

This judgment reinforces the strict scrutiny applied to non-compete clauses within employment contracts. It underscores the necessity for employers to demonstrate that such restraints are reasonable, protect legitimate business interests, and are not excessively broad in scope or duration. Future cases will likely reference this decision when evaluating the enforceability of similar covenants, ensuring that courts adhere closely to established legal tests rather than diverging based on peripheral factors like potential employment hardship.

Complex Concepts Simplified

Non-Compete Covenant

A non-compete covenant is a clause in an employment contract that restricts an employee from entering into competition with the employer after the employment period ends. Typically, this involves not working for a competitor or starting a competing business within a specified time frame and geographic area.

Restrictive Covenant

This term refers to any contractual clause that limits an individual's activities. Beyond non-compete clauses, it can include non-solicitation clauses (preventing poaching of clients or employees) and non-disclosure clauses (prohibiting the sharing of confidential information).

Interim Injunction

An interim injunction is a temporary court order that either restrains a party from doing something or compels them to do something pending the final outcome of a case. It's meant to maintain the status quo and prevent potential harm before the case is fully heard.

Balance of Convenience

This is a legal principle used to determine which party would suffer greater harm should the court grant or deny an injunction. The court weighs the potential benefits and detriments to both parties to decide the appropriate course of action.

Trade Secrets

Trade secrets encompass confidential business information that provides a company with a competitive edge. This could include formulas, practices, processes, designs, instruments, or patterns of information not generally known to the public.

Conclusion

The Planon Ltd v Gilligan case serves as a pivotal reference point in the enforcement of non-compete covenants within employment contracts. The Court of Appeal's decision highlights the critical importance of adhering to established legal tests when evaluating such restrictive clauses. Employers must ensure that non-compete agreements are not only reasonable in scope and duration but also precisely tailored to protect legitimate business interests without imposing undue hardship on former employees. This judgment reinforces the judiciary's role in balancing the protection of business interests with the individual's right to employment, thereby contributing to the nuanced landscape of employment law.