Restrictive Covenants: can contacts and client relationships still be protected in the digital age?
In East England Schools CIC (trading as 4myschools) v Palmer and another, a case from December 2013 concerning restrictive covenants, the High Court ruled that the fact that recruitment information is widely available on social media does not prevent an employer from protecting its connections with clients and candidates.
4myschools, an educational recruitment consultancy, employed Ms Palmer between January 2011 and March 2013 as a recruitment consultant whose job it was to match teacher applicants with schools in the Essex area.
Ms Palmer's employment contract contained non-solicitation and non-dealing covenants which prevented her from soliciting or dealing with candidates or clients (schools) with whom she had dealt in the twelve months prior to the termination of her employment, for a period of six months following termination.
Ms Palmer obtained a new job as a senior consultant with Sugarman Education ("Sugarman") and commenced her employment there in April 2013. Shortly thereafter, 4myschools had reason to believe that Ms Palmer had been acting in breach of her covenants and its solicitors wrote to Ms Palmer and Sugarman drawing attention to the restrictive covenants in Ms Palmer's contract and seeking undertakings from Ms Palmer that she would not act in breach of them. Ms Palmer gave those undertakings (with a few concessions).
However, 4myschools subsequently discovered evidence that suggested that Ms Palmer continued to act in breach of the restrictions and it made an application to the High Court seeking damages.
The Court found the non-solicitation covenants to be reasonable in scope and duration and upheld them. It disregarded one part of the non-dealing covenants (something courts are able to do with restrictive covenants, known as 'severing') because the 'severed' text rendered the covenants too wide, but upheld the remainder of the non-dealing covenants as valid and enforceable. The Court upheld the claims for breach of contract against Ms Palmer and inducement to breach of contract against Sugarman and awarded damages of £7,040 to 4myschools.
This decision is interesting because of the Judge's view on what information could be protected by 4myschools through the use of restrictive covenants in its employees' contracts. The Defendants argued that 4myschools had no legitimate 'proprietary interest' to protect for a number of reasons:-
- Neither schools nor teachers have any loyalty to any particular agency and each goes to whichever of the many agencies in the market that can meet its, his or her immediate needs;
- With the increasing use of the internet and social media, all relevant information about schools and teachers is now in the public domain and so cannot be confidential to any particular agency;
- All schools deal with a number of employment agencies and almost all teachers register with several employment agencies at the same time; and
- To the extent that any loyalty does exist, it is to the agency and not to any particular employee of that agency.
However, the Judge agreed with 4myschools that a non-solicitation restrictive covenant does not seek to protect general information about clients but is concerned with protecting the close relationship with specific clients built up by consultants during the course of their employment.
The Judge accepted that much of the relevant information about teachers and schools is publicly available and that there is little loyalty owed either by the schools or the teachers to any particular consultant or agency. However, 4myschools did have a sufficient proprietary interest that it was entitled to seek to protect, in the connections which Ms Palmer made with the schools and teachers with whom she dealt on 4myschools' behalf.
The building of relationships with clients was an integral part of Ms Palmer's role at 4myschools. Although schools and candidate teachers will ultimately use whichever agency has the right applicant or vacancy, they have a choice about which agency to contact first. That choice may be influenced by a number of factors but the relationship with the consultant may well be the deciding factor and to be given the first opportunity to try to fill a vacancy is a valuable asset for any agency.
Some of the information about schools and teachers which Ms Palmer acquired while working for 4myschools would not have been publicly available, such as details of personalities, likes, dislikes and foibles in relation to specific clients and candidates. Such information could be used in any attempt to divert business from 4myschools to her new employer. The fact that the relationship between the schools or teachers and the recruitment consultancy was shown to be fragile made it even more necessary and legitimate for the employer to seek to protect it through the enforcement of covenants.
Employers should take comfort from this case since it demonstrates the fact that even in the current climate of information being obtainable at the click of a button, client relationships remain worthy of protection through the use of restrictive covenants, and enforcement of them if necessary.