Having recently written about restrictive covenants, we thought we would share with you the courts' recent approach to restrictive covenants in employment contracts.

 

In Morris-Garner & Anor v One Step (Support) Limited, the defendants (two of them) were (1) the founding director of a company (Company A) and (2) her partner. Company A had been founded in 2002, but in 2006, in secret, the defendants incorporated another company (Company B). They then resigned from their positions with Company A and agreed to enter into restrictive covenants not to compete and a non-solicitation clause (which basically means not to try and take employees, customers, business opportunities etc.) with Company A. Company B began trading in 2007, and in 2012 Company A sued for breach of the restrictive covenants. 

 

As mentioned in the first part of 'Feeling Restricted?' (https://www.splegal.co.uk/news/42-feeling-restricted), the courts will want to ensure that a restrictive covenant is not drafted in such a way that it prevents competition with a former employer. Any restrictive covenant is unenforceable as they restrain the employee’s right to trade. That said, and again as mentioned in part 1, if they are drafted no more widely than necessary for the purpose of protecting the employer’s trade secrets and confidential information, connections with clients or stability of the workforce, they may be enforceable. The more senior the employee, the more likely are the courts to consider the covenant reasonable.

 

In Morris-Garner & Anor v One Step (Support) Limited, the first defendant didn’t even argue in the High Court that the covenant was unenforceable. Her partner (the second defendant) did, claiming she was a mere employee, so it was not enforceable against her. The court gave that short shrift, as it was clear that the reason for the agreement in the first place was that the second defendant was the first defendant’s civil partner and later her business partner. 

 

What makes this case interesting is that this may now be seen as something employers can more readily rely on, largely because of the remedy awarded by the court. In this case, it was inherently difficult to identify any particular loss suffered by Company A on account of the breaches of the restrictive covenants. So to navigate around this particular issue, the court awarded “Wrotham Park damages” (named after the case in which this type of damages were first awarded). This was the amount which Company A might reasonably have demanded for releasing the defendants from the restrictive covenants before they began in competition. Before this decision, Wrotham Park damages had been seen as a highly exceptional remedy (i.e. rarely used). This case appears to have drastically reduced the 'exceptional' part, potentially making this a remedy that will encourage people to claim them more readily than before.

 

Note to employers - drafting restrictive covenants is not easy, but that should not discourage you from considering putting these into your contracts.

 

This is a very specialist area of law. If you, or someone you know needs advice in this area, please get in touch immediately. The law relating to restrictive covenants is extensive, so please do not treat this as comprehensive legal advice.