Factual and Procedural Background
This appeal arises from a decision by Judge Johnson, who refused applications by Company A to enforce a 12-month non-compete covenant against the Defendant, a former employee of Company A. The covenant was part of a group of post-termination restrictions (PTRs) in the Defendant's employment contract. The Defendant had commenced employment with Company B, identified by Company A as a key competitor. Company A sought injunctions to enforce the covenant and to require disclosure of the Defendant's current employment contract and job description. The Defendant provided undertakings reflecting all PTRs except the non-compete covenant before the injunction hearing. The appeal was permitted by Lewison LJ, and the Defendant filed a Respondent's Notice contending that the Judge erred regarding delay by Company A in applying to the court.
The Defendant was employed by Company A from February 2015, promoted in May 2020, and resigned in July 2021. He was placed on garden leave from August 2021 and started working for Company B in September 2021. Company A alleged breaches of the PTRs and common law duties of confidence by the Defendant. Procedurally, Company A issued a claim and application notices in October 2021, but no statements of case had been served by the injunction hearing, with extensions agreed for pleadings.
Legal Issues Presented
- Whether the Judge applied the correct legal tests in assessing the enforceability of the non-compete covenant.
- Whether Company A had legitimate business interests requiring protection by the covenant.
- Whether the covenant was reasonable and no wider than necessary to protect Company A's interests.
- Whether the Defendant's delay in responding affected the entitlement to interim relief.
- Whether damages would be an adequate remedy if an injunction were wrongly granted.
- Whether the Defendant should be ordered to disclose his current employment contract and job description.
Arguments of the Parties
Appellant's Arguments
- The Judge failed to apply the established three-step test for enforceability: interpretation of the covenant, identification of legitimate business interests, and assessment of reasonableness of scope.
- The Judge erred in focusing on the covenant as a complete ban on working in the sector rather than its legitimate protective purpose.
- The Judge wrongly assessed the reasonableness by reference to the Defendant's ability to work rather than Company A's legitimate interests.
- The Judge improperly required Company A to prove the Defendant could find alternative employment during the restriction period.
- The Judge was wrong to refuse disclosure of the Defendant's current employment contract and job description.
- The appeal was important beyond this case because similar covenants exist in other employees' contracts.
Respondent's Arguments
- The Defendant contended that the Judge correctly considered delay by Company A in applying for relief.
- The Defendant argued the covenant was unreasonable and overly broad.
- The Defendant asserted he had no intention to breach the PTRs and had informed Company B accordingly.
- The Defendant claimed significant personal hardship if restrained from working for 12 months.
- The Defendant disputed that Company B was a competitor of Company A.
- The Defendant contested the accuracy of Company A's evidence regarding confidential information and his access to it.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| American Cyanamid Co v Ethicon Limited [1975] AC 396 |
Principles for granting interim injunctions: serious issue to be tried, inadequacy of damages, balance of convenience. |
Accepted by parties; used as framework for assessing injunction application. |
| Coppage v Safety Net Security Limited [2013] EWCA Civ 1176 |
Summary of law on restrictive covenants; reasonableness test; employer's legitimate interests. |
Accepted by Defendant; guided legal analysis of covenant enforceability. |
| Herbert Morris Limited v Saxelby [1916] AC 688 |
Non-compete covenants must protect trade secrets or customer connections; no protection against competition per se. |
Referenced to explain limits on enforceability and distinction between skill and confidential information. |
| Lansing Linde Limited v Kerr [1991] 1 WLR 250 |
Assessment of injunctions where restraint period nearly elapsed; some assessment of merits appropriate. |
Applied to justify preliminary assessment of covenant enforceability at interlocutory stage. |
| Faccenda Chicken v Fowler [1984] ICR 589 |
Definition and scope of trade secrets versus confidential information. |
Referred to in discussion of confidential information protected by covenant. |
| Norbrook Laboratories v Adair [2008] IRLR 878 |
Residual discretion to refuse injunction if exceptional hardship to defendant. |
Considered in analysis of balance of convenience and discretion in granting injunction. |
| Scorer v Seymour-Jones [1966] 1 WLR 1419 |
Non-compete covenants upheld to protect confidential information and customer connections. |
Used to support rationale for enforcing covenants protecting legitimate business interests. |
| Littlewoods Organisation v Harris [1977] 1 WLR 1472 |
Practical necessity of non-compete covenants to protect against disclosure of confidential information. |
Referenced to justify enforceability of short-term restrictive covenants. |
| Office Angels v Rainer-Thomas [1991] IRLR 214 |
Reasonableness test; employer must identify interest protected; narrower covenant may be preferable. |
Applied to assess scope and reasonableness of covenant. |
| Fitch v Dewes [1921] 2 AC 158 |
Non-compete covenant enforceability depends on adequate protection of legitimate interests. |
Referenced in discussion of covenant scope and protection of employer's interests. |
| Rex Stewart Jeffries Parker Ginsberg v Parker [1988] IRLR 483 |
Reasonableness of duration of restrictive covenant depends on circumstances and seniority. |
Considered in assessing 12-month duration of the covenant. |
| Doherty v Allman (1878) 3 App Cas 709 |
Enforcement of valid negative covenants by injunction; specific performance of contract terms. |
Held not applicable at interlocutory stage; relevant only after validity established at trial. |
| Piglowska v Piglowski [1999] 1 WLR 1360 |
Appellate court should not lightly interfere with trial judge's discretion. |
Referred to in assessing Judge's exercise of discretion and judgment clarity. |
Court's Reasoning and Analysis
The Court found that the Judge erred in his approach to the enforceability of the non-compete covenant. The Judge did not explicitly apply the established three-step test: interpreting the covenant, identifying legitimate business interests, and assessing whether the covenant was no wider than necessary. Instead, the Judge focused predominantly on the effect of the covenant on the Defendant's ability to find alternative employment, treating this as a key factor against enforceability. The Court held that no authority supports using the Defendant’s potential unemployment as a test of enforceability.
The Judge accepted that Company A had legitimate business interests requiring protection, including confidential information and trade secrets, and that damages might not be an adequate remedy. However, the Judge did not sufficiently consider Company A’s arguments supporting enforceability when assessing the covenant’s validity, only doing so when considering the balance of convenience.
The Court emphasized that at the interlocutory stage, the court should not give a definitive ruling on validity but may make a preliminary assessment as part of the balance of convenience. Given the Defendant had been employed by Company B for over seven months and only about four months remained in the restraint period, the Court found that enforcing the covenant by injunction at this stage would be inappropriate as the status quo had shifted and much potential damage had likely occurred.
The Court also addressed delay, concluding that Company A had acted reasonably in timing its application given the Defendant’s initial evasiveness and attempts to reach agreement. The Court agreed with the Judge’s refusal to order immediate disclosure of the Defendant’s current contract and job description, noting such disclosure could be sought later and was unusual before standard disclosure.
Finally, the Court clarified that the principle from Doherty v Allman concerning enforcement of valid covenants by injunction does not apply at interlocutory stages where validity is not yet established.
Holding and Implications
The Court UPHELD THE JUDGE'S REFUSAL to grant an injunction enforcing the non-compete covenant, but on different legal grounds. It held that the Judge’s legal approach to the enforceability of the covenant was flawed. However, given the delay and the short remaining term of the covenant, it would be inappropriate to grant an injunction now.
The direct effect is that the Defendant may continue working for Company B without immediate enforcement of the non-compete covenant. The Court did not set new precedent but reaffirmed established principles regarding the assessment of restrictive covenants, particularly the limited role of interlocutory injunctions in determining enforceability and the importance of the balance of convenience.