Net Affinity Ltd v Conaghan & Ors

Factual and Procedural Background

The Plaintiff, a company specialising in digital marketing and booking engine systems for the hotel sector, brought proceedings seeking a series of interlocutory injunctions against the first Defendant (an individual employee) and the second Defendant (a competitor company). The Plaintiff alleged breaches of confidentiality, misuse of intellectual property, and enforcement of a non-compete clause contained in the first Defendant's contract of employment. The first Defendant had resigned and given notice to the Plaintiff but intended to take up employment with the second Defendant, a main competitor in the same market. The Plaintiff raised concerns about the retention and copying of confidential documents and electronic files by the first Defendant prior to departure, including material stored on memory sticks and other electronic devices. The Plaintiff sought to restrain the Defendants from using confidential information and from engaging in competitive activities for a period of twelve months. The matter proceeded through various interim applications and interlocutory hearings before the High Court.

Legal Issues Presented

1. Whether the prohibition on working for a competitor (the non-compete clause) is void as being an unlawful restraint of trade.
2. What measures are required to enforce the protection of confidential information and intellectual property.
3. Whether the first Defendant is in breach of her duty of confidence and contract of employment.

Arguments of the Parties

Plaintiff's Arguments

• The non-compete clause is valid and enforceable to protect legitimate business interests.
• The first Defendant retained and copied confidential information and intellectual property, including client details and proprietary social media marketing modules.
• The first Defendant's customer connections and knowledge of the Plaintiff's business would cause serious detriment if exploited by the competitor.
• Injunctive relief should be granted to prevent the first Defendant from working for the competitor or soliciting existing customers for twelve months.
• The Plaintiff offered to pay salary for six months as "garden leave" to protect its interests.

Defendants' Arguments

• The non-compete clause is too wide and constitutes an unlawful restraint of trade.
• The first Defendant does not possess or intend to use confidential information improperly.
• The competitor company denies any intention to use confidential information and challenges the enforceability of the non-compete clause.
• The Defendants intend to fully defend the proceedings.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the non-compete clause under the established twofold test for restraint of trade: reasonableness between the parties and consistency with public interest. The clause prohibited the first Defendant from working for any individual or company providing similar services to the Plaintiff for twelve months post-termination, without any geographic limitation.

The court found the temporal limitation of twelve months to be reasonable given the Plaintiff's business model and annual contract renewals with clients. However, the clause's unlimited geographic scope and broad prohibition on all competition were deemed excessively wide. The court noted that such a broad restriction would preclude the Defendant from working even in markets unrelated to the Plaintiff's business, which is unreasonable.

The court referenced Irish authority, particularly Murgitroyd and Company v. Purdy, which emphasized the importance of limiting prohibitions to legitimate business interests such as customer connections and confidential information. The court concluded that the non-compete clause was void and unenforceable as drafted.

Despite this, the court acknowledged the Plaintiff's legitimate concerns regarding the retention and copying of confidential documents and intellectual property by the first Defendant prior to departure. The Plaintiff demonstrated that the first Defendant had access to and retained sensitive information, including client details, pricing, and proprietary marketing modules.

The court considered the balance between protecting confidential information and the employee's right to work. It accepted that injunctive relief could be granted to prevent misuse of confidential information and solicitation of existing customers but rejected a total prohibition on the first Defendant's employment with the competitor.

The court also recognized that the competitor company could be indirectly benefiting from the Defendant's confidential knowledge, justifying injunctive relief against the competitor to prevent solicitation of the Plaintiff's existing clients for twelve months.

Regarding the dispute about the Defendant's notice period and immediate commencement with the competitor, the court found the Defendant had given proper notice and had been asked to leave immediately by the Plaintiff. There was no evidence that the Defendant had passed confidential information to the competitor or commenced employment with them at the time of the hearing.

Holding and Implications

The court held that the non-compete clause in the first Defendant's contract was void and unenforceable due to its excessive breadth and lack of geographic limitation.

However, the court granted interlocutory injunctive relief restraining the first Defendant from soliciting or dealing with any existing customers of the Plaintiff for a period of twelve months, consistent with the Plaintiff's legitimate business interests in protecting confidential information and customer connections.

Similarly, the second Defendant (the competitor) was restrained from soliciting or dealing with the Plaintiff's existing customers for twelve months to prevent indirect exploitation of confidential information.

The court declined to grant a broader injunction preventing the first Defendant from working for the competitor entirely, finding such relief disproportionate to the protection required.

The decision directly affects the parties by limiting the first Defendant's ability to engage with the Plaintiff's customers but does not set a new precedent beyond applying established principles on restraint of trade and confidentiality. The matter of damages and full trial on breaches remains outstanding.