Enforcing Post-Termination Restrictions

In May 2016 the Government launched a call for evidence as to whether non-compete restrictions are stifling entrepreneurship.  Caroline Glacken of Constantine Law looks at a recent case which demonstrates the relevance of the contractual bargain that is made between the employer and the employee and the power of an employer to protects its commercial interests.

Post-termination restrictions are a key part of the armoury a business will have in place to protect itself from competition by a former employee.  There is often a misconception that injunctions, to enforce these restrictions, are hard to obtain and that non-compete clauses, in particular, are difficult to enforce.  Of course, every case turns on its own facts but, in principle, if the restriction was valid and reasonable when the employee agreed to it then the employer should be well positioned to hold the employee to his or her bargain.

This position was confirmed in the recent case of D v P [2016] EWCA Civ 87, in which P (the employee) appealed a decision to grant D (the employer) an injunction against the employee enforcing a ‘non-compete’ provision, which prevented P from taking up immediate new employment.

Before the case got to the Court of Appeal, the injunction had been granted against the employee.  This was despite evidence that he had acted in good faith and honestly, and injunctive relief was considered appropriate to protect the employer’s interests and commercially sensitive information. The Court looked at the original contractual bargain that had been made and found that the restriction was valid and reasonable, in particular -

    the employee had voluntarily entered into the restriction
    at the date of the employment contract, the restriction was reasonably necessary to protect the employer's legitimate commercial interests in its trade secrets and other confidential information that both parties might reasonably have anticipated the employee would acquire in the course of his employment
    the restriction was in the interests of both parties, was not contrary to the public interest and was enforceable.

In dismissing the employee’s appeal against this decision, the Court of Appeal reiterated that the starting point is that the ordinary remedy in these cases is an injunction.  The absence of damage to the employer will not necessarily prevent it from obtaining an injunction and ultimately, as in this case, where the restriction was valid and reasonable it will be possible to hold the employee to his/her original contractual bargain.  However, there may be exceptional cases where there is an absence of damage to the employer and such prejudice and hardship to the employee that it would be unconscionable to grant the injunction.  

In May 2016, the Government launched a call for evidence on the impact of these types of restrictions, on the basis that they might be stifling entrepreneurship and preventing startups from hiring the best talent.  This is an interesting proposition: is the market stifled or is there fair restriction on people and businesses? Surely startups and entrepreneurs will also want to benefit from the security of contractual restrictions to protect their new ideas and information.  Can the labour market be opened up without making significant inroads on the ability of a business to protect itself and its commercial information?   

The case of D v P is a solid reminder of the power of well drafted and reasonable restrictions in protecting the interests of the business and the ability of the employer to keep a former employee out of the market.  Businesses which place any sort of reliance on these types of clauses would be advised to watch this space carefully. The call for evidence closes on 19 July 2016.

This article originally appeared in LinkedIn