Opinion

Restrictive covenants and intention

10th July 2017

Organisations now operate in an increasingly competitive market place which is itself characterised by features of globalisation, various market forces and increased client expectations. Therefore, the protection of business interests is a key factor in maintaining an organisation’s strength and some employers look to rely on restrictive covenants in protecting these interests.

The law underpinning restrictive covenants in the context of employment is complex and riddled with case law. Indeed, restrictive covenants are on the face of it void, subject to whether they are deemed reasonable.

In MPT Group v Peel, the High Court considered the disclosure of business intentions upon an employee’s exit from a company. In MPT Group, two employees had left employment with MPT. Both individuals were categorised as senior employees holding job titles of Technical Manager and Technical Sales Manager. In light of their seniority, both employees had access to highly confidential and business sensitive information. Both employees were subject to restrictive covenants which prevented them from dealing with or soliciting away, customers of MPT Group following their departure from the company. The restrictions were six months in duration.

Following the expiry of the six month period, the employees set up business in direct competition with MPT. Upon leaving MPT, both employees were questioned about their intentions after leaving.

Neither employee indicated any intention to set up business in competition. The reasons given by one employee included, spending more time with family and working freelance and in respect of the other employee, that he had been offered alternative employment.

The employer’s claim was based upon three central arguments including:
1. Breach of copyright,
2. The employees had misused confidential information,
3. They did not disclose their proper intentions upon leaving employment with MPT.

The employer sought a springboard injunction in order to prevent the employees from taking advantage of what it deemed to be, unlawful behaviour.

The High Court found that the employees were under no duty to disclose their true intentions to MPT. The High Court did grant limited injunctive relief in order to prevent the employee from divulging to any third party, a specified class of document. It was clear however, that the employees did not need to provide details of their true intention when leaving employment.

Employer Considerations

Restrictive covenants are indeed difficult to enforce and are subject to severe scrutiny. However, it is clear that employees have no obligation to inform an employer of their intentions post termination of employment. Therefore, employers will need to rely on the terms of the restrictive covenants and confidentiality provisions contained within the contract of employment.

As such, care should be taken to ensure that they are drafted carefully so as to avoid any arguments that they are unreasonable and thus unenforceable.

 

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