Non Compete clause in my contract - Can it be enforced?
Discussion
Hello fellow PHers,
I've found myself in an enviable position with work. I've been headhunted by a direct competitor which happens to be in the very same town. They are offering a good package and it is the next logical step for me to take to progress my career. All good apart from one hitch, I have a restrictive covenant in my contract which tells me I can't work for a rival company. Obviously it's there for this very reason, to stop existing employees jumping ship and taking confidential information with them. But I was wondering have any of you guys on here been in a similar situation where a restrictive covenant applied to you. What did you do, wait patiently for 6 months before you start your new job, or ignore the clause and jump in to your new job with both feet?
I'm not management, but I'm not bottom of the pile. I have access to some sensitive information and a fairly key person in the structure of the company. Looking for advice as to how to handle the situation
I've found myself in an enviable position with work. I've been headhunted by a direct competitor which happens to be in the very same town. They are offering a good package and it is the next logical step for me to take to progress my career. All good apart from one hitch, I have a restrictive covenant in my contract which tells me I can't work for a rival company. Obviously it's there for this very reason, to stop existing employees jumping ship and taking confidential information with them. But I was wondering have any of you guys on here been in a similar situation where a restrictive covenant applied to you. What did you do, wait patiently for 6 months before you start your new job, or ignore the clause and jump in to your new job with both feet?
I'm not management, but I'm not bottom of the pile. I have access to some sensitive information and a fairly key person in the structure of the company. Looking for advice as to how to handle the situation
Barwy said:
Hello fellow PHers,
ignore the clause and jump in to your new job with both feet?
I'd do this and fignore the clause and jump in to your new job with both feet?
k it all. what could possibly go wrong?The serious answer is that you will need to get advice from a proper employment lawyer as this is a complex area.
Breadvan72 is a leader in this area but he will be swinging his handbag somewhere louche now.
I believe the clause has to be reasonable to be enforceable. So, for example, if you worked for Apple and were restricted from working for any computer company anywhere in the world for 5 years, that would not be enforceable.
But if you worked in a senior sales role for an avdertising agency in Cambridge, a clause restricting you from working for a competitor within 20 miles in the next three months probably could be enforceable.
The restriction has to be reasonable in commercial terms, so if you made the tea at that ad agency, or were the chief accountant, it probably wouldn't be enforceable.
What they would do about enforcing your contract is another matter. And the offer could be a useful bargaining counter with your present company, unless you are unhappy there.
But if you worked in a senior sales role for an avdertising agency in Cambridge, a clause restricting you from working for a competitor within 20 miles in the next three months probably could be enforceable.
The restriction has to be reasonable in commercial terms, so if you made the tea at that ad agency, or were the chief accountant, it probably wouldn't be enforceable.
What they would do about enforcing your contract is another matter. And the offer could be a useful bargaining counter with your present company, unless you are unhappy there.
desolate said:
Either way, if the current employer wants to push it, it can get expensive and stressful pretty quickly. And there really is no substitute for proper advice.
This.Such provisions are enforceable in principle subject to them being reasonable - and that's heavily dependent on the facts of the case.
Be wary of placing too much weight on well-intentioned advice from partially-informed contributors on here. There has been a lot of unmitigated rubbish posted on threads on this topic in the past.
My handbag is on my lap. I would rather that Pippa the Strippa was in my lap, but instead I am in a cab trying to get the fk outta Dodge, loucheness having been banned this evening by spousal edict.
The advice given above is mostly sensible. PM me the clause and a brief description of the business setting and I will give you an informal view, probably tomorrow. If you would like to add to the enlightenment of the populace, post the deets up here.
k outta Dodge, loucheness having been banned this evening by spousal edict.The advice given above is mostly sensible. PM me the clause and a brief description of the business setting and I will give you an informal view, probably tomorrow. If you would like to add to the enlightenment of the populace, post the deets up here.
Barwy said:
Hello fellow PHers,
I've found myself in an enviable position with work. I've been headhunted by a direct competitor which happens to be in the very same town. They are offering a good package and it is the next logical step for me to take to progress my career. All good apart from one hitch, I have a restrictive covenant in my contract which tells me I can't work for a rival company. Obviously it's there for this very reason, to stop existing employees jumping ship and taking confidential information with them. But I was wondering have any of you guys on here been in a similar situation where a restrictive covenant applied to you. What did you do, wait patiently for 6 months before you start your new job, or ignore the clause and jump in to your new job with both feet?
I'm not management, but I'm not bottom of the pile. I have access to some sensitive information and a fairly key person in the structure of the company. Looking for advice as to how to handle the situation
Regardless of when you make a change, what you do with "sensitive" information is a separate question. As BV will articulate, in principle one cannot be prevented from earning a living. At the same time, in principle information that is proprietary to an organisation may not be shared with others, especially with a close rival.I've found myself in an enviable position with work. I've been headhunted by a direct competitor which happens to be in the very same town. They are offering a good package and it is the next logical step for me to take to progress my career. All good apart from one hitch, I have a restrictive covenant in my contract which tells me I can't work for a rival company. Obviously it's there for this very reason, to stop existing employees jumping ship and taking confidential information with them. But I was wondering have any of you guys on here been in a similar situation where a restrictive covenant applied to you. What did you do, wait patiently for 6 months before you start your new job, or ignore the clause and jump in to your new job with both feet?
I'm not management, but I'm not bottom of the pile. I have access to some sensitive information and a fairly key person in the structure of the company. Looking for advice as to how to handle the situation
As a management issue, one usually would find that an employee who had chosen to jump ship to a close rival and, in the process, had flouted a non-compete clause, would not be looked upon with toleration and understanding if he or she also were seen to have breached a confidentiality agreement or betrayed company secrets.
Lord Denning said:
It is thus established that an employer can stipulate for protection against having his confidential information passed on to a rival in trade but experience has shown that it is not satisfactory to have simply a covenant against disclosing confidential information. The reason is because it is so difficult to draw the line between information which is confidential and information which is not and it is very difficult to prove a breach when the information is of such a character that a servant can carry it away in his head. The difficulties are such that the only practicable solution is to take a covenant from the servant by which he is not to go to work for a rival in trade. Such a covenant may well be held to be reasonable if limited to a short period.
Nowadays, the word employee would be used instead of the word servant, (Lord Denning was old fashioned, and spoke the words quoted in 1977), but the principle enunciated by Lord Denning (the case was called Littlewoods v Harris, the business context was mail order catalogues) is still applied on a regular basis. To show how the arguments go, here is something that I wrote for a recent trial (my client, the employer, won on a twelve month non compete).
I cited Lord Denning, and then continued thus:-
29. See also Turner v Commonwealth & British Materials Ltd [2000] IRLR 114 (CA), a case in which employees of a mining and exploration company covenanted, as part of severance agreements, ‘not to be involved whether directly or indirectly for a period of 12 months from termination date with any business which competes or is likely to compete with any business or project carried on by the company or any member of the group at the termination date in which business or project [the employee] was involved in the course of his employment by the company’. Waller LJ explained the basis for upholding this clause, as follows:
"Thus a covenant restraining competition alone is unenforceable as between employer and employee. The seller of a business or partnership is in a different position because unless there is a covenant to restrain competition the vendor can win back the very goodwill that he has sold."
"Thus to enforce the covenant at all the company would have to establish proprietary rights in the nature of trade connection or in the nature of trade secrets. I should emphasise that because those are the matters which they are legitimately entitled to protect it does not follow that clause 5.6 must be unreasonable because covenants restraining the use of confidential information or the canvassing of trade connections could be, and indeed in this case were, imposed. It has been recognised in many cases that because there are serious difficulties in identifying precisely what is or what is not confidential information, and who may or may not have been a customer during the period of an employee’s service, a restraint against competing which is reasonable in time and space will not only be enforceable but the most satisfactory form of restraint."
30. The point was again considered by the Court of Appeal in Thomas v Farr [2007] ICR 932 (CA). See Toulson LJ at 940:
"In order to establish that the inclusion of a non-competition clause in an employment contract was reasonably necessary for the protection of the employer's interest in confidential information, the first matter which the employer obviously needs to establish is that at the time of the contract the nature of the proposed employment was such as would expose the employee to information of the kind capable of protection beyond the term of the contract (ie trade secrets or other information of equivalent confidentiality). The degree of the particularity of the evidence required to establish that matter must inevitably depend on the facts of the case. To say this is to say nothing new. Aldous LJ stated the principle in Scully (UK) Ltd v Lee [1998] IRLR 259, 263, para 23:
“In cases where a restrictive covenant is sought to be enforced, the confidential information must be particularised sufficiently to enable the court to be satisfied that the plaintiff has a legitimate interest to protect. That requires an inquiry as to whether the plaintiff is in possession of confidential information which it is entitled to protect. (See Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479 F.) Sufficient detail must be given to enable that to be decided but no more is necessary.”
"Provided that the employer overcomes that hurdle, it is no argument against a restrictive covenant that it may be very difficult for either the employer or the employee to know where exactly the line may lie between information which remains confidential after the end of the employment and the information which does not. The fact that the distinction can be very hard to draw may support the reasonableness of a non-competition clause. As was observed by Lord Denning MR in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479, and by Waller LJ in Turner v Commonwealth & British Minerals Ltd [2000] IRLR 114 at para 18, it is because there may be serious difficulties in identifying precisely what is or what is not confidential information that a non-competition clause may be the most satisfactory form of restraint, provided that it is reasonable in time and space."
31. The Court in Turner upheld a twelve month non-competition clause. Note also that the employee there alleged, as the Defendant does here, that he would not be able to recall all details of the confidential information that he had been exposed to in his former employment, but the Court accepted that he would recall sufficient key details to justify an injunction.
32. For a recent example of how this principle works in practice, where the analysis is apposite to the present case, see UK Power Reserve v Read [2014] EWHC 66 (Ch). That was a decision at the interim stage, but the Judge considered in detail a non-competition clause that protected confidential information and took the view that it was likely to be enforceable at trial. The Judge accepted that there was a body of confidential information sufficient to justify the covenant. Note from paragraph 74 that such information need not be defined in the same way as would be required to frame a confidentiality injunction:-
" … I conclude that at trial it is more likely to be established than not that the Claimant has a legitimate interest to protect in respect of the confidential information contained in, or derived from, the Project Analysis spreadsheet and Capex spreadsheets. In my judgment, this is a sufficient particularisation of confidential information to overcome the hurdle to which Toulson LJ referred in paragraph 42 in Thomas v Farr. (For the avoidance of doubt, I make it clear that I consider that it is likely to be established that the confidential information was equivalent to trade secrets.) I have drawn the line in defining the scope of the confidentiality injunction because of the consideration that it is necessary for Mr Read to know precisely what it is that the injunction prohibits him from doing. This does not preclude there from being a body of other information, of a like degree of confidentiality, which remains confidential after the end of the employment, but whose boundaries are more ill-defined. I mention again the evidence as to the seniority of Mr Read‘s position in the Claimant‘s operations and his involvement in matters concerning the business, the politics of investment and strategy, his direction of all technical due diligence on acquisitions, the commissioning of reports and the designing of the scope, details and costs of operations and capital projects, as well as access to what Mr Emrich described as ?highly sensitive tender data and market analysis?. In the light of this, it seems to me very realistic to suppose that Mr Read is possessed of a body of confidential information which the Claimant has a legitimate interest to protect which extends beyond the Project Analysis spreadsheet and Capex spreadsheet and information derived from those documents, though it may be very difficult for the Claimant or Mr Read, in the words of Toulson LJ, to know exactly where the line may lie between information which remains confidential after the end of the employment and the information which does not. Therefore, again to use Toulson LJ‘s words, provided that it is reasonable in time and space a non-competition injunction may be an appropriate form of restraint."
33. See also on this point paragraph 97 of that judgment. It can be appropriate to grant a confidentiality injunction and also a non-compete injunction. The existence of the former (here in the form of an undertaking proferred by the Defendant) protecting a defined set of information does not obviate the need for the latter, protecting a more loosely defined body of information.
34. Note also that the covenant there was a twelve month covenant and the Judge at paragraph 75 held that period of restraint likely to be enforceable, not least because the confidential information in that case (as in this one) had been accrued over a long period and was not likely rapidly to go out of date.
35. In the present case, where the nature of the business is such that real trade secrets about technical processes are generated in the course of that business, it will be difficult for even the most honest ex-employee to distinguish between what he can fairly use in a new job and what he cannot use. This is precisely the sort of situation for which limited non-competition clauses are designed.
I cited Lord Denning, and then continued thus:-
29. See also Turner v Commonwealth & British Materials Ltd [2000] IRLR 114 (CA), a case in which employees of a mining and exploration company covenanted, as part of severance agreements, ‘not to be involved whether directly or indirectly for a period of 12 months from termination date with any business which competes or is likely to compete with any business or project carried on by the company or any member of the group at the termination date in which business or project [the employee] was involved in the course of his employment by the company’. Waller LJ explained the basis for upholding this clause, as follows:
"Thus a covenant restraining competition alone is unenforceable as between employer and employee. The seller of a business or partnership is in a different position because unless there is a covenant to restrain competition the vendor can win back the very goodwill that he has sold."
"Thus to enforce the covenant at all the company would have to establish proprietary rights in the nature of trade connection or in the nature of trade secrets. I should emphasise that because those are the matters which they are legitimately entitled to protect it does not follow that clause 5.6 must be unreasonable because covenants restraining the use of confidential information or the canvassing of trade connections could be, and indeed in this case were, imposed. It has been recognised in many cases that because there are serious difficulties in identifying precisely what is or what is not confidential information, and who may or may not have been a customer during the period of an employee’s service, a restraint against competing which is reasonable in time and space will not only be enforceable but the most satisfactory form of restraint."
30. The point was again considered by the Court of Appeal in Thomas v Farr [2007] ICR 932 (CA). See Toulson LJ at 940:
"In order to establish that the inclusion of a non-competition clause in an employment contract was reasonably necessary for the protection of the employer's interest in confidential information, the first matter which the employer obviously needs to establish is that at the time of the contract the nature of the proposed employment was such as would expose the employee to information of the kind capable of protection beyond the term of the contract (ie trade secrets or other information of equivalent confidentiality). The degree of the particularity of the evidence required to establish that matter must inevitably depend on the facts of the case. To say this is to say nothing new. Aldous LJ stated the principle in Scully (UK) Ltd v Lee [1998] IRLR 259, 263, para 23:
“In cases where a restrictive covenant is sought to be enforced, the confidential information must be particularised sufficiently to enable the court to be satisfied that the plaintiff has a legitimate interest to protect. That requires an inquiry as to whether the plaintiff is in possession of confidential information which it is entitled to protect. (See Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479 F.) Sufficient detail must be given to enable that to be decided but no more is necessary.”
"Provided that the employer overcomes that hurdle, it is no argument against a restrictive covenant that it may be very difficult for either the employer or the employee to know where exactly the line may lie between information which remains confidential after the end of the employment and the information which does not. The fact that the distinction can be very hard to draw may support the reasonableness of a non-competition clause. As was observed by Lord Denning MR in Littlewoods Organisation Ltd v Harris [1977] 1 WLR 1472 at 1479, and by Waller LJ in Turner v Commonwealth & British Minerals Ltd [2000] IRLR 114 at para 18, it is because there may be serious difficulties in identifying precisely what is or what is not confidential information that a non-competition clause may be the most satisfactory form of restraint, provided that it is reasonable in time and space."
31. The Court in Turner upheld a twelve month non-competition clause. Note also that the employee there alleged, as the Defendant does here, that he would not be able to recall all details of the confidential information that he had been exposed to in his former employment, but the Court accepted that he would recall sufficient key details to justify an injunction.
32. For a recent example of how this principle works in practice, where the analysis is apposite to the present case, see UK Power Reserve v Read [2014] EWHC 66 (Ch). That was a decision at the interim stage, but the Judge considered in detail a non-competition clause that protected confidential information and took the view that it was likely to be enforceable at trial. The Judge accepted that there was a body of confidential information sufficient to justify the covenant. Note from paragraph 74 that such information need not be defined in the same way as would be required to frame a confidentiality injunction:-
" … I conclude that at trial it is more likely to be established than not that the Claimant has a legitimate interest to protect in respect of the confidential information contained in, or derived from, the Project Analysis spreadsheet and Capex spreadsheets. In my judgment, this is a sufficient particularisation of confidential information to overcome the hurdle to which Toulson LJ referred in paragraph 42 in Thomas v Farr. (For the avoidance of doubt, I make it clear that I consider that it is likely to be established that the confidential information was equivalent to trade secrets.) I have drawn the line in defining the scope of the confidentiality injunction because of the consideration that it is necessary for Mr Read to know precisely what it is that the injunction prohibits him from doing. This does not preclude there from being a body of other information, of a like degree of confidentiality, which remains confidential after the end of the employment, but whose boundaries are more ill-defined. I mention again the evidence as to the seniority of Mr Read‘s position in the Claimant‘s operations and his involvement in matters concerning the business, the politics of investment and strategy, his direction of all technical due diligence on acquisitions, the commissioning of reports and the designing of the scope, details and costs of operations and capital projects, as well as access to what Mr Emrich described as ?highly sensitive tender data and market analysis?. In the light of this, it seems to me very realistic to suppose that Mr Read is possessed of a body of confidential information which the Claimant has a legitimate interest to protect which extends beyond the Project Analysis spreadsheet and Capex spreadsheet and information derived from those documents, though it may be very difficult for the Claimant or Mr Read, in the words of Toulson LJ, to know exactly where the line may lie between information which remains confidential after the end of the employment and the information which does not. Therefore, again to use Toulson LJ‘s words, provided that it is reasonable in time and space a non-competition injunction may be an appropriate form of restraint."
33. See also on this point paragraph 97 of that judgment. It can be appropriate to grant a confidentiality injunction and also a non-compete injunction. The existence of the former (here in the form of an undertaking proferred by the Defendant) protecting a defined set of information does not obviate the need for the latter, protecting a more loosely defined body of information.
34. Note also that the covenant there was a twelve month covenant and the Judge at paragraph 75 held that period of restraint likely to be enforceable, not least because the confidential information in that case (as in this one) had been accrued over a long period and was not likely rapidly to go out of date.
35. In the present case, where the nature of the business is such that real trade secrets about technical processes are generated in the course of that business, it will be difficult for even the most honest ex-employee to distinguish between what he can fairly use in a new job and what he cannot use. This is precisely the sort of situation for which limited non-competition clauses are designed.
Joking apart, good old fashioned copying and stealage of hard copy docs are making a come back. Many employers can now detect when the database has been raided, and stealing the secret stuff via IT often leaves footprints, so some employees bent on naughtiness have reverted to old skool paper and card methods. When I first started doing these cases, some time in the late Middle Ages, the standard thing was to nick the card indices that held all the business info, but then things went all fancified and computerised.
BTW, a lot of people are not aware of the EU Database Right, a form of IP that is a very powerful weapon for an employer, as the employer can sue for misuse of all or part of its database even if the contents do not qualify as confidential.
BTW, a lot of people are not aware of the EU Database Right, a form of IP that is a very powerful weapon for an employer, as the employer can sue for misuse of all or part of its database even if the contents do not qualify as confidential.
williamp said:
Or get your wife to photocopy all the confidential data using a shop in surrey. That'll be fine. Gosh, doesnt 2007 seem like a long time ago!
Breadvan72 said:
Joking apart, good old fashioned copying and stealage of hard copy docs are making a come back. Many employers can now detect when the database has been raided, and stealing the secret stuff via IT often leaves footprints, so some employees bent on naughtiness have reverted to old skool paper and card methods.
Indeed, during the 2007 "Spygate" mess, an engineer named Phil Mackereth, who had gone from McLaren to Renault, was discovered to have made at the time of his job-change about 70 screen-grabs of confidential McLaren IP (unrelated to his own work) and to have given the information to Renault. In the event both Mackereth and Renault escaped sanction, as the FIA was not interested in harm suffered by McLaren. For those interested in reversion to old fashioned photocopying, please note that etching the glass plate is a reasonably common way of marking documents that are produced.
Slightly O/T, but on the grounds that these clauses are enforceable, how hard should one push for it to be employer funded at contract signature? Happy to take six months gardening leave, but not six months unpaid. Not looking right now, but for future reference.
Slightly O/T, but on the grounds that these clauses are enforceable, how hard should one push for it to be employer funded at contract signature? Happy to take six months gardening leave, but not six months unpaid. Not looking right now, but for future reference.
Push as hard as you feel you can. In Germany, post termination restrictions cannot be enforced unless the employer pays the employee the equivalent of half pay for the duration of the restriction. Over here, no such rule applies, but garden leave during the notice period has advantages for both parties. It costs the employer some wong, but is often more certain of enforcement than a post termination restriction. The employee gets paid to do nowt, which could be a sweet deal. Protestations by the employee that six months or so in the garden will kill him/her stone dead in the marketplace are rarely realistic or effective.
Where there is a garden leave clause and then a period of post termination restriction, it is sensible to agree that time spent on garden leave is knocked off the post termination restraint, but in a recent case that I did the employer was able to enforce a twelve month post termination restraint even though it had placed the employee on garden leave for almost three months before the employment ended. That was a bit of a result for the employer (my client), but came about because the employee and the rival business played their hands very poorly throughout the pre action correspondence and the litigation (which went from issue to trial in six weeks, BTW), and were rotten, unconvincing witnesses at trial.
Where there is a garden leave clause and then a period of post termination restriction, it is sensible to agree that time spent on garden leave is knocked off the post termination restraint, but in a recent case that I did the employer was able to enforce a twelve month post termination restraint even though it had placed the employee on garden leave for almost three months before the employment ended. That was a bit of a result for the employer (my client), but came about because the employee and the rival business played their hands very poorly throughout the pre action correspondence and the litigation (which went from issue to trial in six weeks, BTW), and were rotten, unconvincing witnesses at trial.
Edited by anonymous-user on Saturday 8th August 22:48
Breadvan72 said:
That was a bit of a result for the employer (my client), but came about because the employee and the rival business played their hands very poorly throughout the pre action correspondence and the litigation (which went from issue to trial in six weeks, BTW), and were rotten, unconvincing witnesses at trial.
Cheers for sharing the above - I read it with interest, it was a real insight as this issue pops up quite a lot.In that situation I guess the employee had already started working for the new employer?
Can I ask how it got to trial so quickly, and a ballpark for the consequences for the losing parties?
The employee never started the new job. There was initially correspondence between the parties which led to the employee agreeing to stay off work pending negotiations. When negotiations broke down, the employer applied for an injunction. The Court ordered a speedy trial, with the employee undertaking to stay away from the rival business until judgment. A speedy trial is now the norm in these cases. Why argue on an interim basis when you can cut to the chase and have a final determination? Also, the speedy trial timetable puts pressure on both sides to settle, and the court likes that. This one did not settle. The upshot was a three day trial, judgment for the claimant, and an injunction for the duration of the post termination restraint (by that time it had about ten months still to run). The employee has to pay the employer's costs, which are about £170,000 (50K for me, 120K for the solicitors, a good US firm with a City of London office). The employee's own costs will have been about £100K (another London office of a US firm, counsel from Littleton Chambers). Speedy trials are labour and cost intensive. It remains to be seen whether the rival business will bankroll the employee. Both companies are American, well funded, and aggressive. The employee was a 60K a year engineer.
Edited by anonymous-user on Saturday 8th August 10:04
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