Last month, the High Court (the Court) granted interim injunctions preventing a former employee from soliciting or dealing with his former employer’s customers after the company found out that he had engaged with at least 26 of their customers in breach of the restrictive covenants in his employment contract.
Background
In Morgan Fire Protection Limited v. Robert Peter Mogford and General Fire Protection Limited, the former employer (Morgan Fire Protection, the Claimant), provided fire safety goods and services. Prior to his resignation, Mr Mogford (the first Defendant) was employed as a field service engineer by the Claimant. The Claimant contended that the first Defendant, while still employed, had independently or through his own business (General Fire Protection, the second Defendant) provided fire safety services to the Claimant’s customers. Additionally, after leaving the company, it was alleged that the first Defendant solicited an unidentified customer and had continued to offer fire safety services to the Claimant’s customers. Such actions would be in contravention of the post-termination obligations outlined in Appendix 2 of his employment contract. It was also alleged that the first Defendant had used his former employer’s confidential information, such as customer details and pricing information, to provide services through the second Defendant. The first Defendant argued that the restrictions in Appendix 2 were unenforceable because they were an unreasonable restraint on competition.
Decision
The Court held that the Claimant had satisfied the three crucial limbs of the test (known as the American Cyanamid test), namely:
- Is there a serious issue to be tried?
- If so, would damages be an adequate remedy?
- Where does the balance of convenience lie?
In this case, there were serious issues to be tried, namely whether the first Defendant had solicited the Claimant’s customers with whom he had dealt during his employment with the Claimant; and whether Appendix 2 was enforceable.
The Court considered that there was a strong argument that the covenants prohibiting solicitation of customers and dealing with customers under paragraphs 2.1 and 2.2 of Appendix 2 were reasonable and therefore enforceable. Paragraph 2.1 prohibited the first Defendant, without the prior written consent of the Claimant, during his employment and for 12 months from his employment ending, from soliciting business from customers with whom he had dealt whilst employed by the Claimant. Paragraph 2.2 prohibited the first Defendant, without the prior written consent of the Claimant, for 12 months from his employment ending, from dealing with or accepting instructions from a customer with whom he had dealt when he had been employed by the Claimant.
Further, the Court decided that damages would not be an adequate remedy and that the balance of convenience favoured the grant of the interim injunction to the Claimant.
Key takeaways
This decision highlights the importance of businesses protecting themselves through effective and enforceable restrictive covenants. It is essential to have restrictive covenants properly drafted into employment contracts so that they reflect the business’s interests, especially when key employees leave to join or set up competing businesses. Employers should ensure that any post-termination restrictions are reasonable in scope, duration and geography to protect legitimate business interests, without overly restricting a former employee’s ability to work.
This decision also highlights the necessity of confidentiality clauses within employment contracts to safeguard sensitive business information. Employers should clearly define what constitutes confidential information and the post-termination obligations of employees.
The Court’s willingness to grant an interim injunction in this case is a useful reminder that can and will be enforced by the courts in appropriate cases. Employers can seek this remedy when there is a risk of significant harm to their business that would not be adequately compensated by damages. This is particularly relevant when the defendant employee may not have sufficient resources to cover a damages award.
If you would like to discuss further any of the points raised in this blog, please reach out.
