Egon Zehnder Limited -v- Tillman 2017 EWHC 1278 (Ch)
In this recent judgment, a restriction preventing the departing employee from working for a competitor for a period of six months was upheld.
The judgment sets out a helpful overview of the Court's current approach to assessing the enforceability of restrictions which apply following the termination or expiry of a contract. The starting position is that all covenants which amount to a restraint of trade are, at first instance unenforceable unless it can be shown that the restrictions are reasonable by reference to the interests of the parties concerned.
Assessing the enforceability of a restrictive covenant is a four stage process:
- The Court must decide what the covenant means.
- The Court must consider whether there is a legitimate business interest requiring protection.
- The Court must then be satisfied that the restrictions are no wider than is reasonably necessary.
- Following stages 1 - 3 the Court will then consider whether it should exercise its discretion to grant an injunction.
Each of the stages above will require in-depth legal analysis of both the wording of the restrictions and the wider context in which they are to be applied. Restrictive covenant disputes, perhaps more than most disputes, turn on the precise facts of the case.
Balance of Convenience
Usually, when asked to grant an injunction, the Court will consider whether there is a serious issue to be determined and then focus on where the balance of convenience lies - i.e. balancing the damage which may be caused by granting the injunction against the damage which may be caused if it is not in place. However, this case is a helpful reminder that where it will not be possible to hold a trial before the restrictions would have otherwise expired, the Court will also consider the merits of whether the claim would be likely to succeed at trial.
Arguably therefore the party seeking an injunction faces a higher threshold to satisfy the Court that it ought to grant the injunction. This approach is designed to prevent injustice on a Defendant who, because of the injunction, would be bound for the entirety of the restriction only to later be found at trial that the claim did not have sufficient merit and the injunction should not have been granted.
Here, the Judge decided that despite having non-solicitation, non-dealing and confidentiality clauses, the non-compete clause preventing the employee taking up employment for a competitor, was still justified. The Judge said that whilst the other restrictions "provided a large measure of protection, they do present policing difficulties both in terms of ascertaining whether there has been a straightforward breach and in terms of more subtle activity…".
Whilst the four stage test in deciding whether a restriction is enforceable is straightforward, this case is a useful reminder that the underlying legal principles and the relevant factual matters are complex and require careful analysis. This is especially the case when a party seeking an injunction may have to convince the Court that not only does the balance of convenience favour granting the injunction but that its claim for breach of the restriction is likely to succeed. This is not an easy task in circumstances when an injunction needs to be sought urgently at a time when it is unlikely that all of the facts and evidence will be available.