Successfully enforcing restrictions

Posted by Oliver Weiss on
Restrictive covenants and garden leave clauses are common features of employment contracts and are aimed at protecting business from departing or departed employees.

Covenants typically prevent ex-employees from dealing with or soliciting clients, or poaching colleagues. They are however also notoriously difficult and expensive to enforce.

Sometimes it will be more effective to place the employee on garden leave, whereby the employee remains employed and paid, but is not given any work to do and, typically, is prevented from having any contact with the employer's clients.

Employers should take heart from two recent decisions where businesses have successfully enforced both these types of clauses.

12 month garden leave upheld

In the first case, a stockbroking firm placed its employee, Mr Holliday, on garden leave for 12 months in accordance with his contract when he resigned. The firm wrote to clients and introduced them to a new investment manager.

Mr Holliday asked to be sent market updates while on garden leave but the firm refused because it would have enabled Mr Holliday to compete with it in the future. Mr Holliday alleged that this constituted a fundamental breach of contract which brought his employment to an end immediately (constructive dismissal) and that he was therefore not bound by the garden leave restriction.

The High Court granted an injunction preventing Mr Holliday from working for, or passing information about the firm's clients to any other stockbrokers, and enforcing the restrictions in his employment contract.

The Court considered 12 months reasonable, since Mr Holliday had taken legal advice on his contract, had not sought to change it, and at the same time his salary had been tripled.

It also accepted that the garden leave clause extended no further than necessary to protect the firm's legitimate business interests and to allow it to foster relations with Mr Holliday's client base and that Mr Holliday was not significantly disadvantaged by it.

Employee ordered to pay £50,000 damages

We previously reported on the case of Safetynet Security Ltd v Coppage where the High Court upheld a restrictive covenant preventing Mr Coppage from soliciting anyone who had been a customer of Safetynet Security Ltd (Safetynet) during his employment. It also held that Mr Coppage was in breach of that covenant and ordered him to pay £50,000 in damages to Safetynet.

The Court of Appeal has now ruled that not only was the High Court right in its judgment, but the sum of £50,000 was also justified. This is a helpful case which shows that where covenants are successfully enforced, substantial damages can sometimes be recovered.

Employers must remember that the initial tailored drafting of these clauses, usually at the start of the employment relationship, will be key to their enforceability.

About the Author

Oliver heads up the London Employment, Pensions & Benefits and Immigration Team.

Oliver Weiss
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