The Human Cost of Interim Injunctions

Enforcement restrictive covenants: a common source of interim injunction proceedings
Interim injunctions are commonly seen when an employee leaves a business. But what are the issues at hand?

Introduction

Beginning a new role is always an exciting experience, with new responsibilities, working environments and colleagues to become familiar with.  However, in some cases, leaving one employer and joining another can become your worst nightmare.

Just before the Christmas break, Virtuoso Legal were instructed on an urgent new interim injunction involving our client’s former employer, FreshAsia Foods Limited (“FreshAsia”), seeking to (amongst other things) force our client to terminate his employment with his new employer. 

FreshAsia relied upon a, rather broad, restrictive covenant in our client’s employment contract which purported to prevent our client from working for a competitor, in the first instance for a period of 10 years, then latterly for a one-year period.

With student debts and a mortgage to pay, quitting your job is simply not an option. As such, our client instructed us to oppose the interim injunction and achieve the key objective; to defend his right to work. The “lP Protect” team at Virtuoso Legal rolled into action.

On 18 December 2018, the week before Christmas when most people are making last minute preparations for the festive period; buying presents for loved ones, our client, along with the Virtuoso Legal IP Protect team, were in the High Court defending his right to work at his new employer.

The next day, the judge for hearing, Mr. Daniel Alexander QC, gave his decision.  Mr. Alexander’s full judgment can be found here. The decision is lengthy and complex and we analyse it in detail below.  However, in short, our client retained his right to maintain his new employment.

Post-Employment Restrictive Covenants: Avoiding Interim Injunctions

During the orientation process of any new role there are a range of formalities, such as the signing of your contract – which, in the excitement of the new role, often don’t receive the attention they deserve. However, these documents can contain material such as restrictive covenants that may, suddenly, become very significant to you should you later move on from the company.

Equally, it is important that companies are aware of the reasonable restrictions that they can place on employees when they leave – as overbearing restrictions may not stand in a court of law.

It is quite common nowadays to have restrictive covenants (e.g. non-compete clauses) in employment contracts as the employers are entitled to protect their “legitimate interests”.  Indeed, employment contracts will feature different wordings of the restrictive covenants depending on the nature of the business – but typically include restrictions on sharing the employer’s confidential information or on benefiting from the employer’s customer connections records.

From a companies’ perspective, it is important for restrictive covenants to be appropriately drafted as they can be difficult to enforce in court proceedings unless they are reasonable. This is because such covenants will be considered in relation to the doctrine of restraint of trade which protects the employees from overzealous companies.

What to do if your previous employer seeks to enforce restrictive covenants against you?

Should this be the case, ensure that this is navigated with extreme care and that you get the best legal professional help available as soon as possible. The longer you leave, the worse matters will become!

Where the employer believes that a breach of restrictive covenant took place following the employee’s departure from the company, the employer will often try to persuade the court that an injunction is required to stop the ex-employee from breaching the covenants. Most often, such orders are sought on an interim, prohibitory, injunction basis.

This will be the case where following your resignation you decide to work for a competitor or open your own business in a similar field – which is common. It may be the case that, particularly where you’ve been a valuable employee, your previous employer tries to stop you from offering your skills or knowledge to another company, even though you are not in breach of any of their restrictive covenants.

If you are currently an employee using your personal computer for work purposes, you should ensure that upon your departure from your current job, you discuss with your employer about the documents you are in possession of and return them in accordance with the company’s procedure.

If you are an employer, it would be best to ensure that your employees have all the necessary computers to work on and avoid allowing employees to work from their personal computers as much as possible. You will also need a clear policy upon the situations in which the employees can use their own personal computers and what will happen upon the employees’ departure. Should that be the case, as an employer you should try your best to ensure that no company information was left on your ex-employee’s personal computer. This will likely mean that you will have to hire a forensics specialist to examine and search for the company’s documents.

The Present Case: FreshAsia Foods Limited vs Jing Lu

The two core issues at play in this case were the validity and enforceability of:

  1. The non-solicitation clause within the employment contract (specifically relating to contacting customers, leads and leveraging goodwill established at the prior employer)
  2. The non-compete clause within the employment contract (relating to conducting business activity that unfairly competes and thus damages the Claimant’s own business activity).

Both were contained within a single clause within the employee handbook.

Notably, should the Claimant have freely enforced its terms, as set out, the Defendant would have been in a perilous position unable to work within their field of business, anywhere within the EU.

Non-solicitation

The first issue in play concerned a clause within the Defendant’s contract that, upon leaving FreshAsia’s employment, would restrict the Defendant:

for a period of six months (for non-senior employees) or twelve months (for senior employees) (hereinafter referred to as the “leaving period”) in respect of any aspect of the business which the Company undertakes, solicit, or attempt to solicit the custom of, or sell, or deliver to or accept work for private gain and/or for any third party, from any private individual, firm or company or otherwise deal with any person who at the date of termination of this contract is a customer or potential customer of the Company to whom you have personally sold and/or delivered the Company’s products on behalf of the Company or whom you had introduced to the Company, or approached on behalf of the Company, or with whom you had any business dealings or knowledge in the leaving period immediately prior to the date of termination of your employment.”

In theory, this clause is standard within many contemporary business agreements. Restricting employees from leaving and contacting their prior client base and leads is a reasonable term to enforce. However, it is equally important that reasonable expectations are placed upon this restriction – so that it is not onerous nor runs foul of the doctrine of restraint of trade.

Mr Daniel Alexander QC commented first on the extent to which our client had actually been in contact with customers of FreshAsia:

In my judgment, the scope of prohibited activities is greater than reasonably necessary to protect [The Claimant’s] legitimate interest… it is one thing to prevent an employee in the position of [the Defendant] from soliciting custom from his previous customers for a new employer seeking to supply those customers. It is another thing for him to be prevented from working at all for one of the customers with which he has dealt in the given ways. In my view it is likely that this aspect of the clause will be held to be too broad to be enforceable.”

Then upon the clause’s treatment of limiting contact with “prospective customers”:

“If [the Defendant] knew of the existence of a potential or actual customer and had approached them at any time during his employment he would be prohibited from soliciting them for 12 months after termination… the present clause is more likely than not to be found to be too wide…”

Third and finally, relating to, in the broad sense to individuals with which he had “business dealings” and “knowledge”. This was found to be “very broad” and as such lacked a “clear way in which it may be interpreted to relate directly to the protection of a legitimate interest”.

As such, in this case, Mr. Danny Alexander QC found that the limitations sought by the Claimant were technically uncertain and broad in scope, accepting our client’s more definitive undertakings to limit any solicitation toward the Claimant’s customers (determined between the parties on a definitive list).

Non-compete

In addition, included alongside the above non-solicitation clause were non-compete provisions. Specifically, the non-compete aspect of the clauses deemed that our client would not: “Own, manage, operate, consult for, or be employed by [his new employer] or any other business substantially similar to or competitive with the Claimant”.

Mr Daniel Alexander QC questioned this upon clarity – specifically that “substantially similar to or competitive with” lacked a degree of clarity that would be enforceable.

In addition to this, Mr. Daniel Alexander QC noted that he was not satisfied the scope of the clause was “no wider than reasonably necessary to protect confidential information or trade connection…”. In essence, the clause’s scope goes above and beyond FreshAsia’s legitimate interests. 

Further to this, in regards to enforceability, Mr. Daniel Alexander QC deemed the indeterminate scope “too wide, especially given the field restrictions which together make for a comprehensive ban on working in any similar business for a period of 12 months anywhere in Europe in any capacity”. This is because FreshAsia in this case was involved in a niche, specialist industry, and our client’s skills lent themselves to work in that particular niche industry.

As such, Mr. Daniel Alexander QC refused at this interim injunction hearing to enforce the non-compete provisions.

Conclusion

The consequence of these proceedings was a far less difficult position for our client, Jing Lu, who is now able to work in the industry he has passion for (at the very least) until trial on the matter in May 2019.

Crucially, it is important for employees to ensure to carefully read and retain their employment contracts and any employee handbooks issued by the employer.  In particular, terms such as non-compete clauses might typically be included in both the contract and the handbook.

On the other hand, employers should ensure that such a clause is properly constructed and is clear enough to be enforced and, ideally, should be tailored to each employee.

When it comes to the interim injunctions, the court will consider the practical realities of the case. There are cases, especially when it comes to non-compete clauses where the injunction would have a particularly severe impact upon the person – and these injunctions will be granted only where the court is reasonably satisfied that the claim will succeed.

The employer will need to show that it has some protectable interest in order to make the non-compete clause enforceable. For example, such protectable interests could be contacting and conducting business with clients that existed prior to the employee’s departure. The court will analyse whether the scope of prohibited activities will be greater than necessary to protect the employer’s interest. Stopping someone from earning a living will generally be frowned upon by the courts.

It is important to emphasise the importance the legal advice you might receive as an ex-employee against whom a non-compete might be enforced. Indeed, legal practitioners, and particularly IP specialists, with knowledge of the law and prior experience in such cases will be able to analyse such provisions of the contract and defend you against any unfair attempts from your ex-employer to stop you from exercising your right to work.

The Human Cost of Interim Injunctions was written by Philip Partington

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