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Should we take legal action against a former employee in breach of a restrictive covenant?

Posted in : Seamus Says - Employment Law Discussion on 11 January 2019
Seamus McGranaghan
O'Reilly Stewart Solicitors

Q: I heard that an ex-employee in a non-managerial role recently started work for a former client who I suspect may have approached the employee prior to the departure from our company. Should we take legal action against this former employee, given that they are potentially in breach of a restrictive covenant in their contract of employment? Would we have to prove that the company has suffered a financial detriment as a result of this action?

Scott: Okay. We move on to, I suppose, an interesting and connected aspect here. We got a couple of questions on restrictive covenants in restraint of trade. They often go hand in hand, as you said, Seamus, with garden leave. First question, "I heard that an ex-employee in a non-managerial role recently started work for a former client who I suspect may have approached the employee prior to the departure from our company. Should we take legal action against this former employee, given that they are potentially in breach of a restrictive covenant in their contract of employment? Would we have to prove that the company has suffered a financial detriment as a result of this action?"

It wasn't really the case that they suffered that financial detriment, so if you're trying to stop somebody or sue them now that they're working there, is it worth it to really take a claim and go to high court and get an injunction?

Seamus: I think in these circumstances, probably the cost would outweigh the risk in terms of what we're seeing here. Really, that's the question that you have to look at for these sorts of scenarios that arise, looking at the circumstances that have arisen in assessing the risk, what is the risk of this employee?

If there's going to be a substantial—we're reading here that it's a non-managerial role, but usually, you would have thought further up the hierarchy in relation to senior management, that if their actions are in breach of restrictive covenants are going to cause a significant detriment to the business, whether it's the loss of a client or they're going to take a lot of staff with them or their suppliers or something like that, it could well be worth enforcement.

Just to give a bit of background in relation, I've done a number of these applications to the court whereby you are looking and seeking to enforce restrictive covenants. Essentially, what you're looking for is for injunctive relief, so these applications take place quickly and certainly, you're not delaying. If you delay it, a judge will be saying, "Why have you delayed so long?" And it will weaken your argument as to why you have to seek the injunction.

But they are expensive processes. The majority of them usually take place in the high court. You will get them in the county court as well. But they're quick-moving. You have to react quickly to them and usually, it does involve bringing on counsel and it's the drafting of affidavits and all of that.

The first thing that will happen is you will sit down and go through your restrictive covenants in detail. One of the cases that I had went through the county court. I remember that we moved in front of the judge. I remember the judge just picking complete holes the whole way through the client's restrictive covenants. They weren't adding up. They weren't marrying up. They were very restrictive in parts.

There were other aspects of it that didn't, really for territory and setting out the specifics that the detail wasn't in it. We very much came away from that saying we're going to have a problem here with enforcement. You do need to consider carefully in advance of deciding to take an application for injunctive relief and really have evidence as well.

A lot of steps are taken by employees, they're not really done out in the open and there are suspicions in behind by the employer and you need to be clear about the evidence. The first protocol is usually to write to the employee first of all and say, "We think you're at risk," or, "We know that you are and here are some undertakings that we want you to get legal advice on and sign to say that you won't." Then if they don't do that then, you're into the injunctive aspect of it.

Scott: But in this one here, chances are it's a non-managerial role. So, unless there's a very special skill, you used to get these things with hairdressers quite a lot because the hairdresser, they'd get a chair in a hairdresser's shop and they'd take all the customers and set up on their own or something like that or work from home. You'd try and do that. So, you do get specialist people, specialist skills.

Seamus: You do.

Scott: But ordinarily, you're talking about a senior executive or a partner in a firm and you're worried that they're going to take away your trade secret type of thing.

Seamus: Yes. Exactly.

Q: We have another former employee in a non-managerial role who started work for a company that we would consider to be a competitor. We included a non-compete clause in the contract of employment, which did not include a boundary or distance from our offices defining the restriction in place because we operate province-wide. Should we take action against this employee to prevent other employees from following suit or would this be deemed unreasonable?

Scott: The follow-up question here—we have another former employee in a non-managerial role who started work for a company that we would consider to be a competitor. So, there's a non-compete clause, I feel like.

Seamus: Yes.

Scott: "Although not located at the same time, we included a non-compete clause in the contract of employment, which did not include a boundary or distance from our offices defining the restriction in place because we operate province-wide. Should we take action against this employee to prevent other employees from following suit or would this be deemed unreasonable?" So, I suppose the issue here is it's difficult to see the reasonableness of a restriction—in this case, working for a competitor—if you're saying it's the whole of Northern Ireland.

Seamus: Yeah. It's not defined.

Scott: Where on earth is this person going to get employment? This is a restrictive thing. It's an anti-competition clause, effectively. So, if I'm trained to do a specific job and you stop me working for any competitor anywhere in Northern Ireland, it means I have to leave the country to get work. Courts are going to looking pretty askance at that.

Seamus: Yeah. There's a general principle from the courts that every man deserves to earn a crust. In my circumstances, you're talking about a non-managerial role and that you don't have your territory specified in relation to your boundary or your distance. I think for a non-managerial role in that sense, this is far too restrictive.

I don't think a court would have sympathy for the employer in terms of this. I think you'd be looking for a fairly tight and narrow definition in terms of your territory and really focusing down on the risks of what the business are. They have to be reflective and they have to be reasonable. So, I think in these circumstances, you would have problems going in front of the judge.

Scott: Okay. So, without plugging it too much, Seamus, I think the lesson there is if any of our listeners have restrictive covenant issues, they really should take legal advice because they have to be very tight, they have to be specific, and they have to be reasonable. If they're not any of those, then they're basically not worth the paper they're printed on, unless you're trying to scare people.

Sometimes you put them in just to try and scare people a little bit, but really, if you want them be effective, they've got to be properly drafted. Otherwise, you're going to lose before the court and it's going to cost you a lot of money and you'll have to pay costs for the other side. So, we don't want to do that.

Seamus: Absolutely.

 

This article is correct at 11/01/2019
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The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.

Seamus McGranaghan
O'Reilly Stewart Solicitors

The main content of this article was provided by Seamus McGranaghan. Contact telephone number is 028 9032 1000 or email seamus.mcgranaghan@oreillystewart.com

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