Factual and Procedural Background
This opinion concerns an application for an injunction to enforce an employee restrictive covenant. The covenant would restrain the Defendant from working for a competitor of the Claimant for six months following the termination of her employment, which ended on 30 January 2017. The Defendant intended to start working for a competitor, Company B, on 1 May 2017. Proceedings and an application for an injunction were issued on 10 April 2017. The hearing took place over one day and a portion of a second day on 15 May 2017. The Defendant had not started working in the competitor role at the time of the hearing and was awaiting the outcome of this application. Due to the limited remaining duration of the covenant, the matter was expedited, resulting in hurried evidence and limited submissions.
Legal Issues Presented
- Whether the non-compete restrictive covenant in the Defendant’s employment contract is enforceable and reasonable in protecting the Claimant's legitimate business interests.
- The proper construction of the non-compete clause, including its territorial scope and whether it prohibits shareholding in competing businesses.
- Whether the court should grant an injunction restraining the Defendant from working for a competitor during the covenant period.
Arguments of the Parties
Claimant's Arguments
- The Defendant’s non-compete covenant is valid, reasonable, and necessary to protect the Claimant’s legitimate business interests, including client connections and confidential information.
- The territorial scope of the covenant is limited to the geographical areas where the Defendant was materially involved in the Claimant’s business.
- The covenant does not prohibit shareholding in competing companies; the clause should be construed in light of an express contractual provision permitting limited shareholding during employment.
- The six-month duration of the covenant is reasonable to protect goodwill and allow client relationships to be replaced.
- There are discretionary reasons to grant the injunction, and lesser restrictive covenants (non-solicitation, confidentiality) are insufficient to protect the Claimant’s interests.
Defendant's Arguments
- The non-compete clause is void as it is wider than reasonably necessary to protect the Claimant’s interests and therefore unenforceable under restraint of trade principles.
- The territorial scope of the covenant is too broad, potentially covering worldwide business, making it unreasonable.
- The clause prohibits holding shares in competing businesses, which is an unreasonable restriction beyond what is necessary.
- The Defendant acknowledged being bound by non-solicitation and confidentiality clauses but disputes the enforceability of the non-compete clause.
- The Defendant raised personal hardship arguments related to medical insurance coverage if restrained, though this was not found persuasive by the court.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Lansing Linde Ltd v Kerr [1991] 1 WLR 251 |
Requirement to assess prospects of success when injunction period expires before trial. |
Used as authority to consider merits beyond American Cyanamid principles due to the short remaining duration of the covenant. |
| TFS Derivatives Ltd v Morgan [2005] IRLR 246 |
Three-stage test for reasonableness of restrictive covenants and discretion in granting injunctions. |
Adopted as the framework for assessing the validity and enforceability of the non-compete clause. |
| Gledhow Autoparts Ltd v Delaney [1965] WLR 1366 |
Reasonableness of restraint judged at contract formation, not later developments. |
Applied to assess the covenant based on parties’ contemplation at contract commencement, including anticipated promotions. |
| Allan Janes LLP v Johal [2006] ICR 742 |
Reasonableness must consider the parties’ contemplation including promotions and evolving roles. |
Supported the court’s approach to consider anticipated higher levels of engagement beyond initial consultant status. |
| Office Angels Ltd v Rainer-Thomas [1991] IRLR 214 |
Consideration of whether less restrictive covenants provide adequate protection. |
Used to justify the necessity of the non-compete clause beyond non-solicitation and confidentiality provisions. |
| Home Counties Dairies Ltd v Skilton [1970] 1 WLR 526 |
Reasonableness judged by ordinary circumstances, not extravagant possibilities. |
Supported the court’s realistic assessment of the clause’s scope. |
| Tradition Financial Services Ltd v Gamberoni [2017] EWHC 768 |
Construction of "interested in" clause excluding shareholdings due to express shareholding provisions elsewhere. |
Persuasive authority used to construe the non-compete clause as not prohibiting shareholdings. |
| CEF Holdings Ltd v Mundey [2012] IRLR 912 |
"Any interest" in a company includes holding even one share. |
Referenced by Defendant’s counsel to argue the clause prohibited shareholding, though the court found ambiguity. |
| White Digital Media Ltd v Weaver and Outlook Publishing Ltd [2013] EWHC 1681 |
Similar to CEF Holdings on the concept of "interest" including shareholding. |
Also cited by Defendant’s counsel; court distinguished on contractual context. |
| Ashcourt Rowan Financial Planning Ltd v Hall [2013] EWHC 1185 |
Client confidential information as protectable interest. |
Applied to affirm that client confidential information justifies restrictive covenants. |
Court's Reasoning and Analysis
The court approached this application by assessing the merits of each party’s case, going beyond the usual American Cyanamid test due to the imminent expiry of the covenant. The court considered the contractual terms, the nature of the business, and the Defendant’s role and status throughout her employment. It accepted that the restrictive covenant was intended to protect legitimate business interests including client connections and confidential information.
Two key construction issues were addressed. First, the territorial scope was limited to businesses with which the Defendant was materially involved in the 12 months prior to termination, thus narrowing what might otherwise be an unreasonably broad worldwide restriction. Second, the court found ambiguity in whether the non-compete clause prohibited shareholdings in competitors. It resolved this ambiguity by reference to an express contractual clause permitting limited shareholding during employment, concluding the non-compete was not intended to prohibit shareholdings post-termination.
The court emphasized that reasonableness is judged at the contract’s inception, including the parties’ contemplation of the Defendant’s anticipated progression and engagement with protectable interests. It rejected the Defendant’s argument that only her initial consultant status was relevant, recognizing that the parties anticipated a higher level of involvement due to her prior experience and expected progression.
It found that the non-compete clause was a reasonable and appropriate mechanism to protect the Claimant’s interests, as lesser restrictions were insufficient to prevent subtle misuse of confidential information and client connections. The six-month duration was deemed reasonable to allow client relationships to be replaced and for confidential information to lose commercial value.
The Defendant’s personal hardship argument related to medical insurance was not persuasive, particularly as a temporary alternative role outside financial services was offered by the competitor, allowing insurance coverage.
Accordingly, the court concluded that the Defendant’s intended employment with the competitor would breach the valid non-compete clause and that an injunction restraining such breach should be granted, subject to the concession allowing the Defendant to undertake a restricted training or coaching role.
Holding and Implications
The court GRANTED the injunction restraining the Defendant from engaging in employment with the competitor in breach of the non-compete clause for the remainder of the six-month post-termination period.
This decision enforces the validity of the non-compete covenant as reasonable and necessary to protect the Claimant’s legitimate business interests, including client connections and confidential information. The injunction prevents the Defendant from working in a competing role during the restricted period, while allowing a limited alternative role that does not infringe the covenant. No broader legal precedent was established beyond the application of established principles to the facts of this case.