Restrictive covenants are a useful tool for employers to use to help to protect their business interests from departing employees.
It can be very frustrating to spend years of time and your money building up your business only to see an employee walk off with all of your best clients. Contrary to popular belief there are legitimate ways of preventing this from happening, but you need to have well drafted clauses in the employee’s contract of employment, preferably from the outset.
In a recent case decided by the High Court the interesting issue of restrictions was decided and this time in favour of the Employer.
The case is called Sunrise Brokers v Rodgers.
In this case the employee, Mr Rodgers worked at the London office for a derivatives brokerage firm, Sunrise Brokers. In March 2014 Mr Rodgers left his employment, without notice, as he had an offer of a job with a competitor in the US.
Mr Rodgers was in breach of his contract which required him to give six months’ notice and he was also bound by restrictions in his contract about what he could do when his employment ended.
Sunrise Brokers did not accept his resignation and requested that he return to work. Mr Rodgers refused and the employer stopped paying his salary and applied to the court for a declaration that Mr Rodgers was still an employee. They also applied for an injunction requiring him to adhere to his contractual notice and binding him to his restrictive covenants.
The general starting position is that a contractual term restricting an employee’s activities after termination is void and a restraint of trade, unless the employer can show that:
1) There is a legitimate proprietary interest that it is appropriate to protect, AND
2) The protection sought is no more than is reasonable.
This means that a well drafted restriction can prevent an employee from;
- Working for a competitor for a period of time;
- Soliciting your customers;
- Soliciting employees;
- Dealing with customers;
- Setting up in competition with colleagues.
The High Court decided in favour of the Employer making a declaration and granting an injunction against Mr Rodgers.
They decided that Mr Rodgers was not entitled to be paid during periods he refused to work and this did not amount to a breach on the part of the Employer.
Mr Rodgers could not force the Employer to grant him ‘garden leave’ for his notice period and therefore he was restrained under the terms of his notice and restrictions for a total of 10 months.
Can you make an employee work out their notice & bind them to future restrictions? YES
Points to note
In this case the Employer was successful as they had well drafted restrictions and protected their legitimate interests with a lengthy notice period and restrictions.
It is common practice in certain industry sectors for whole teams to move to a competitor or to set up in competition. What would you do if this happened?
Have you considered what interests you need to protect in your business and how long it would take for your to cement those client relationships with a new employee, for example.
If you would like to discuss your business needs or this case further please do not hesitate to contact me firstname.lastname@example.org.