Defence Against Restrictive Covenants and Breach of Confidence for Ex-Employee

An ex-employee of a world food company left the company seeking to work for a competitor. Following this, the prior employer brings an interim injunction on the basis of a breach of contract and restrictive covenants. Virtuoso Legal assisted Mr. Jing Lu in defending the interim injunction, subsequently winning the case in the High Court.

Freshasia Foods Ltd v Jing Lu.

For any employer, your employees are your greatest assets, but they can often be the greatest threat to your business, especially when they leave for a competitor. For an employee, starting a new job is an exciting time of your life, but not if your former employer seeks to prevent you from doing so. In this case, we defended an employee from an injunction brought against them by a former employer.

In 2019, Virtuoso Legal successfully defended Jing Lu against his former employer, FreshAsia Foods, who were one of the leading suppliers of Chinese Dumplings in the UK, in their attempt to prevent Jing from working for a competitor, Kung Fu, soliciting customers and using their confidential information.

The case started just before Christmas with an urgent application by FreshAsia to obtain an interim injunction to prevent Jing from working at Kung Fu. However, this was successfully defended by Virtuoso Legal. This meant that Jing could continue to work pending the full trial of the matter, which was quite literally a lifesaving result.

Non-Compete

FreshAsia relied upon a, rather broad, restrictive covenant (i.e non-complete clauses) in Jing’s employment contract, which purported to prevent Jing from working for a competitor, in the first instance for a period of 10 years, then latterly for a one-year period.  It is vital for any employer to ensure that their contracts are not drafted so broad as to be ineffective, as they were ultimately held in this case. Employers are only able to protect their “legitimate interests” in such clauses and you need specialist legal advice to ensure you go no further, or risk the whole clause becoming invalid and unenforceable.

Non-Solicitation

Almost all employers’ employment contracts will impose non-solicitation clauses upon their employees. This means that, when the employee departs, they will not be able to contact the employers customers for a period of time.

In the present case, the contract distinguished between “non-senior employees and “senior employees, which resulted in differing non-contact periods. However, FreshAsia failed to inform Jing whether he was a senior or non-senior employee, so it was unclear which applied to him. In addition, at trial it was found that Jing had not been in contact with FreshAsia’s customers for many years, so they had no legitimate interest to protect. As such, on the facts, FreshAsia could not enforce this clause against Jing and he was free (if he so wished) to contact FreshAsia’s customers in his new employment.

Confidential Information

In the last decade, more and more employees work from home and often from their own devices. While the employer benefits from higher staff retention and productivity rates as a result of flexible working policies, it is also a headache when the employee chooses to leave his or her employment. Often a great deal of electronic company confidential information can be retained post-employment.

In the present case, Jing had worked on his own Mac laptop during his employment, due to the increased functionality when compared with company computers, but he had (like many others) not clearly differentiated between his company work and his own personal documents, which made it a laborious process to sift through and separate the documents for deletion post-departure. Indeed, during the proceedings, Jing offered up his laptop to FreshAsia to check, but they declined due to the cost, making it impossible for them to allege that he had retained or misused further documents.

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 relevant to 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.

Indemnity Costs

Since Virtuoso Legal had successfully defended Jing against the claims made by FreshAsia and highlighted FreshAsia’s poor behaviour in bringing the proceedings (rejecting a reasonable offer from Jing to settle and continuing the proceedings to trial when they ought to have known they would have been defeated) the team successfully argued that FreshAsia ought to reimburse Jing’s costs on the “indemnity” rather than standard basis. The indemnity basis means that, usually, the receiving party receives a more favourable percentage of his total costs. As a result, Jing received over £140,000 from FreshAsia.

Conclusion

It is important for employees 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 of 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.