Freshasia Foods Ltd v Lu

Factual and Procedural Background

This case concerns a dispute between a former employee and his ex-employer. Company A, a manufacturer and supplier of Asian foods in the UK and Europe, employed the Defendant from January 2015 until September 2018. The Defendant then joined a competitor, Company B, as a Business Development Manager. Company A alleges that the Defendant breached restrictive covenants in his employment contract and misused confidential information contained in certain protected documents.

The restrictive covenants are contained in the Employee Handbook, specifically clauses in the "Safeguards" section, including non-disclosure of confidential information, non-solicitation of customers, and non-competition provisions, with durations varying depending on whether the employee is "senior" or "non-senior". The Defendant’s employment contract and the incorporation of the Employee Handbook provisions into that contract are central to the dispute.

Procedurally, Company A discovered the Defendant's employment with the competitor in October 2018 and initiated proceedings shortly thereafter, seeking interim injunctions and enforcement of the restrictive covenants. Interim relief was granted with respect to the Defendant’s possession of certain documents but not in relation to the non-compete clause. The Defendant gave undertakings regarding the handling of protected documents and made witness statements. An application to inspect the Defendant's laptop was adjourned and not pursued further by Company A. The trial took place over three days, with evidence and cross-examination of witnesses from both sides.

During the trial, the Defendant sought late permission to amend his Defence to withdraw an admission that the Employee Handbook was incorporated into his contract, which was refused. The credibility of the principal witnesses was assessed, with findings that the Defendant’s evidence was generally preferred over that of Company A’s principal witness.

Key factual findings include the Defendant’s role and seniority at Company A, his limited contact with customers, the handling and deletion of protected documents, and the Defendant’s employment by the competitor. Company A’s claims of loss of sales and misuse of confidential information were scrutinised and found to be insufficiently substantiated.

Legal Issues Presented

1. Whether the restrictive covenants contained in the Employee Handbook were validly incorporated into the Defendant’s contract of employment.
2. Whether the Defendant was a "senior" employee for the purposes of the restrictive covenants.
3. The proper interpretation and enforceability of the non-compete and non-solicitation clauses, including their reasonableness and scope.
4. Whether the Defendant breached the restrictive covenants by soliciting customers or misusing confidential information.
5. Whether the Defendant infringed copyright or database rights in the protected documents.
6. The appropriateness of granting interim or final injunctions to enforce the restrictive covenants.

Arguments of the Parties

Appellant's Arguments (Company A)

• The restrictive covenants in the Employee Handbook were incorporated into the Defendant’s contract by acknowledgement signed in July 2016.
• The Defendant was a senior employee and thus subject to longer restrictive periods (twelve months).
• The non-compete and non-solicitation clauses were reasonable and necessary to protect Company A’s legitimate business interests, including customer goodwill and confidential information.
• The Defendant misused confidential information and retained protected documents beyond his obligations.
• The Defendant infringed copyright or database rights by copying and retaining protected documents.
• Company A sought injunctions to enforce the restrictive covenants and prevent further misuse of confidential information.

Respondent's Arguments (Defendant)

• The Defendant admitted incorporation of the Employee Handbook provisions initially but later sought to withdraw this admission on grounds of lack of consideration, which was refused.
• The Defendant contended he was not a senior employee, and the distinction was uncertain and void for uncertainty.
• The non-compete and non-solicitation clauses were overly broad, unreasonable, and thus unenforceable restraints of trade.
• The Defendant denied misuse of confidential information and argued that retention of documents did not amount to misuse.
• The Defendant denied infringement of copyright or database rights, noting no evidence of access or copying beyond what was permitted.
• The Defendant highlighted the lack of evidence of solicitation of customers or loss attributable to his actions.
• The Defendant raised concerns about the impact of enforcement on his immigration status and ability to work.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Safetynet Security Ltd v Coppage [2013] EWCA Civ 1176	Principles governing enforceability of post-termination restraints in employment contracts, including reasonableness and protection of legitimate proprietary interests.	The court applied these principles to assess whether the restrictive covenants were reasonable and necessary to protect Company A’s interests, concluding that the non-compete clause was unlikely to succeed and the non-solicitation clauses were broader than necessary.
John Michael Design Plc v. Cooke [1987] 2 All ER 332	Protection is only afforded against customers whose future custom is uncertain; no protection against customers faithful to the employer.	The court relied on this principle to assess the scope of the restrictive covenants, concluding that the non-compete clause was not justified by customer goodwill given the Defendant’s limited customer contact.
Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613	Considerations regarding severance of restrictive covenant clauses.	The court noted the debate on severance but did not need to decide the issue given its conclusions on enforceability.
Egon Zehnder Ltd v Tillman [2017] EWCA Civ 1054	Further authority on severance and enforceability of restrictive covenants.	The court acknowledged the relevance of this decision but refrained from detailed analysis pending Supreme Court judgment.

Court's Reasoning and Analysis

The court began by examining the incorporation of the Employee Handbook’s restrictive covenants into the Defendant’s contract, noting that the Defendant initially admitted incorporation but later sought to withdraw that admission. The application to withdraw was refused due to lateness and prejudice to Company A.

The court then analysed the Defendant’s seniority status, concluding that there was no clear criterion for "senior" versus "non-senior" in the Employee Handbook, and the Defendant had not been told he was senior. This uncertainty rendered the relevant clauses void for uncertainty.

Turning to the non-compete clause, the court found that Company A did not have legitimate business interests requiring protection, given the Defendant’s minimal customer contact and the protection already afforded by confidentiality obligations. The clause was also too broad geographically and in scope, preventing the Defendant from working in unrelated roles. The duration of twelve months was excessive relative to the interests protected.

Regarding the non-solicitation clauses, the court agreed with the Defendant that these were broader than reasonably necessary in several respects, including prohibiting work or solicitation beyond what was justified by the Defendant’s actual dealings with customers.

The court considered but did not resolve the issue of severance of the restrictive covenants, noting ongoing legal debate and pending Supreme Court judgment.

On the question of injunctions, the court found no basis to grant enforcement of the non-compete clause, especially considering the Defendant’s immigration status and the imminent expiry of the shorter restrictive period if applicable.

With respect to the retention and use of protected documents, the court accepted that the Defendant breached the obligation to delete certain documents during a limited period post-termination but found no evidence of misuse thereafter. The claim for misuse of confidential information was dismissed for lack of evidence.

The copyright and database right infringement claims were dismissed due to lack of evidence that the Defendant accessed or copied protected documents beyond what was permitted.

Finally, the court found Company A’s evidence of loss of sales and customer solicitation unconvincing and insufficient to establish any breach or damage attributable to the Defendant.

Holding and Implications

DISMISSED: The court dismissed all of Company A’s claims except for the claim that the Defendant breached the obligation to delete copies of protected documents on his laptop and personal Google Drive during the period from termination until 30 November 2018.

The direct consequence is that the Defendant is not restrained from working for the competitor under the non-compete or non-solicitation clauses, and no injunctions enforcing those covenants were granted. The Defendant’s limited breach relating to document retention was acknowledged but did not lead to further relief.

No new legal precedent was established. The decision reflects a fact-specific application of established principles regarding incorporation, enforceability, and reasonableness of restrictive covenants, and the evidential requirements for claims of misuse of confidential information and intellectual property infringement.