A balance of convenience
By Scott Atkins
Trying to enforce restrictive covenants is not always prudent, as Scott Atkins explains
Employers should be adopting a consistent strategy in the enforcement of contracts. This is, perhaps, the central point to be distilled from the recent High Court judgment in Affinity Workforce Solutions Ltd v TCE Kathryn McCann  EWHC 2829 (Ch).
In this case, the claimant (Affinity) applied for injunctions against multiple defendants to prevent them from working for a competitor. The first issue addressed by Justice Sir Richard Snowden was whether the claimant had raised a serious issue to be tried.
Unusually, the court didn’t delve into the merits of whether the clauses were enforceable against the individual defendants. Instead, it concentrated on whether the clauses had been properly incorporated into their contracts of employment.
Most of the defendants had been employed by predecessors of the claimant and had not been subject to restrictive covenants in their original contracts of employment. The claimant’s predecessors had, at some point, offered some of them pay rises together with new contracts - which stated that “all other terms and conditions remain the same”.
In fact, the terms had changed through the incorporation of a non-compete clause prohibiting the defendants from working for a competitor for six months after termination of their employment. Moreover, some of the defendants argued that they had not signed those new contracts. It was, therefore, not particularly surprising that Snowden J found that such fundamental disagreements between the parties meant there was a serious issue to be tried.
As to whether damages would be an adequate remedy for either party at trial, neither side believed that they would. It was difficult for the claimant to quantify any of the breaches of restrictive covenant by the defendants.
Similarly, it was difficult for the defendants to quantify their loss of income if they were restrained from working, as much of their income was based on commission; and they would suffer stress and anxiety if they were prevented from working.
The decision turned on where the balance of convenience lay in the issuing or refusal of an injunction. Snowden J reminded the court that an employer could not protect itself from competition by a former employee but could only protect an asset that the employer could assert was its own, as opposed to the employees’.
The knowledge that the employees had gained out of the claimant’s customers’ identities and requirements could amount to information which could, and usually would, be protected by way of injunctive relief against the former employees.
On the facts, however, no interim injunction would be granted. This was largely due to the strategy adopted against the former employees by the claimant and, presumably, its legal advisors. In correspondence between the employees leaving and the end of September 2019, Affinity set out its claims against it's former employees as amounting to breach of their fiduciary and contractual obligations.
The claimant sought extensive, detailed undertakings from each former employee not to make use of the information it believed was its property and, in particular, not to contact former candidates with whom they had dealt while employed by the claimant. At that point, it didn’t ask its former employees to cease working for Tradewind (the sixth defendant).
Undertakings were agreed between the parties’ solicitors but it was not until the end of September that, for the first time, the claimant stated that it was prepared to issue proceedings against the former employees to restrain them from being employed by Tradewind. The reason for this “volte-face”, as it was described, was not properly explained and seems not to have gone down well in the High Court.
Snowden J held that the agreed undertakings would have adequately addressed the claimant’s concerns; and had to be weighed against the hardship that would have been caused to the former employees had an injunction been issued to restrain them from working for Tradewind.
The claimant indicated to the court that it would have been acceptable for Tradewind to continue employing the individuals, provided they did no work. However, there was no evidence Tradewind would have agreed to such a proposition.
The former employees had, perhaps astutely, offered the same undertakings to the court that were negotiated earlier with the claimant. A breach would have rendered each individual liable for contempt of court. Such an offer supported the notion that the balance of convenience rendered an injunction too much of a sledgehammer to crack the nut of protection that the claimant sought.
Reading the judgment suggests this was a case that probably should never have reached the court, at least for an interim injunction. The claimant and defendants had negotiated, relatively speedily, undertakings which seemed to satisfy both sides’ needs. Care had obviously been taken by the parties’ solicitors in drafting them (there were effectively bespoke for each former employee).
They prevented each of them from contacting their previous clients but did not seek to prevent a former employee from being employed by Tradewind and thus able to earn a living.
For the claimant to issue proceedings for injunctive relief at the eleventh hour seems, at best, a curious thing to do. Its explanation was described by the judge as making little or no sense. Had it been successful, the application would have prevented the defendants from earning their living while appearing to give the claimant no greater protection than the undertakings previously offered.
There are a number of points that arise from this case, as follows:
- Consistency: The court was not persuaded that injunctions were required given that the claimant hadn’t mentioned them until just before issuing proceedings, but had instead drafted specific undertakings which it presumably thought would safeguard its interests. One assumes that seeking injunctions had at least crossed the claimant’s mind at an earlier stage. If so, it would surely have strengthened the claimant’s case to have mentioned the possibility of seeking injunctions at the start of negotiations with the former employees.
- Trite law: It might be trite law but one the judge was right to remind the court: any successful restrictive covenant must protect something owned by the employer.
- New employment terms: There is the fundamental question of taking care when asking employees to sign new contracts of employment. If new terms have been inserted, they should be drawn to the employees’ attention or, at least, the employees should be advised to take independent legal advice on the new employment contracts rather than being (wrongly) told there had been no alterations to their contractual terms. The claimant’s predecessor’s approach of stating categorically that the original terms had not been altered seems at best careless and at worst, misleading.
It would also have made it harder at any trial to seek injunctive relief for breach of contract by the former employees if the claimant could not have shown that the key restrictive covenants were incorporated into the contracts of employment.
- Client records: this may seem obvious but it’s worth repeating: the employer client’s records should be such that straightforward answers can be given to key questions forming part of its case. The claimant alleged that most of the defendants had agreed to the incorporation of the restrictive covenants into revised contracts of employment. A number of former employees disputed signing anything. No evidence of a revised signed contract could be found in relation to one former employee.
While the claimant may have inherited the problem from its predecessor, one might have questioned whether it was prudent to try to enforce restrictive covenants that it could not prove had been agreed by the former employees.
Restrictive covenants in employment contracts will remain controversial. But if an employer is seeking to rely on them, careful and consistent preparation of the case remains essential to success.