Damages as an adequate remedy in Employee Competition claims

Previous case law
Twice this year I have faced arguments from counsel for the Defendants in employee competition injunctions that damages would be an adequate remedy for my (employer) client because damages could (in theory) be assessed. Whilst there are cases on which to base that argument, it has always struck me as ambitious (and it is rarely successful in practice), particularly given Underhill LJ’s dicta in Sunrise Brokers v Rodgers [2015] IRLR 57:

In a case of this kind there are evident and grave difficulties in assessing the loss which an employer may suffer from the employee taking work with a competitor: even where it is possible to identify clients who have transferred their business (which will not always be straightforward, particularly where the new employer is outside the jurisdiction) there may be real issues about causation and the related question of the length of the period for which the loss of the business could be said to be attributable to the employee's breach. If the sums potentially lost are large they will not be realistically recoverable from the employee in any event… There may be other intangible but real losses to the employer's reputation. I do not say that there may not be particular cases in which relief should be refused on the basis that damages are an adequate remedy … unless a specific case to that effect was explicitly advanced, the judge was in my view fully entitled to proceed on the assumption that injunctive relief was the appropriate remedy.

Similarly, when acting for an employee this year, I have faced an argument that damages would be an adequate remedy. From an employee’s perspective, the Court of Appeal in Planon v Gilligan [2022] IRLR 684 held that (notwithstanding two High Court decisions) there was no rule of law that damages would be an adequate remedy for an employee simply because the (ex-) employer was good for its cross-undertaking in damages. Bean LJ said:

…it is quite unrealistic to argue that (since the Claimants have the resources to honour the cross-undertaking) damages would be an adequate remedy for the Defendant if an injunction against competition was granted at the interlocutory stage, but was proved at trial to have been an unenforceable restraint of trade. Except in cases of very wealthy defendants, or where the claimant employer is offering paid garden leave for the whole period of the restraint, this argument has no traction. Mr Gilligan’s evidence is that he has a wife and child, a mortgage and other family commitments. It is by no means clear that his current employers would be able and willing to transfer him to work which had no connection with facilities management software; indeed it would be risky for them to do so in the face of a non-competition injunction breach of which would be a contempt of court. The likely effect of such an injunction would be to deprive him of his income until and unless he can find a new job.

In a previous bulletin I suggested that, in light of Bean LJ’s guidance, those acting for employees should ensure that there is an evidential basis for the submission that damages would not be an adequate remedy (see here).

Tesco v USDAW
Tesco argued in the Supreme Court that difficulty in assessing damages does not, in itself, make damages inadequate, relying on a statement from the nineteenth century case of Fothergill v Rowland (1873) LR 17 Eq 132. Tesco submitted on that basis that damages would be an adequate remedy for the employees if they were fired (and re-hired). The Supreme Court held that:

In our view, damages would be an inadequate remedy in this case. To work out the quantum of damages would require speculation as to how long the employees would have otherwise remained employed by Tesco and, if they were to be lawfully dismissed, what their prospects would be of mitigating their loss by finding alternative employment. In short, the assessment of damages would be very difficult and prone to error. Moreover, it would be resource intensive and potentially costly (perhaps requiring expert labour market evidence). Of course, if there were no alternative, the courts would assess the damages as best they could in the light of the relevant evidence. But an injunction, amounting to indirect specific performance, avoids all such difficulties.

Furthermore, damages for wrongful dismissal have not traditionally reflected the non-pecuniary loss – for example, the loss of job satisfaction, the anxiety and upheaval – caused by losing one’s job…

outside the context of direct or indirect specific performance, difficulty of assessment has been a reason for regarding damages as inadequate for the purposes of the grant of an interim prohibitory injunction: see, eg, Decro-Wall International SA v Practitioners in Marketing Ltd [1971] 1 WLR 361, 371-372; Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349, 380). Moreover, as a matter of principle, it must be correct that, when considering specific performance, damages are inadequate where there is grave doubt about whether they will put the claimant into as good a position as if the contract had been performed.

… damages would be inadequate here because of the difficulties of assessment and because non-pecuniary loss would be irrecoverable.

Conclusion from the above
Whilst the Supreme Court’s comments are strictly confined to the issue of specific performance (including indirect specific performance) it seems to me that:

1. There is no good reason in principle why the comments should apply with less force to (at least the vast majority of) cases involving an application for a prohibitory injunction (e.g. to restrain breach of post-termination restrictive covenants).
2. From the perspective of an employee seeking to resist an injunction on the basis that damages would not be an adequate remedy, the Supreme Court’s comments buttress the guidance in Planon. Even if an employee’s losses in terms of salary and benefits could be precisely calculated, that often will not be the case in respect of a discretionary bonus (which may not be payable at all in relation to periods where the employee is kept out of the market, and may be substantially reduced if they are unable to solicit/deal with certain clients). Not infrequently, such employees will also be able to argue that an injunction preventing them from working will result in “the loss of job satisfaction” or other emotional impact which could not be compensated in damages.
3. What is good for the goose is good for the gander. In other words: (i) the difficulties in assessing damages for employers if an injunction preventing breach of a restrictive covenant is refused (see Sunrise) will mean that it is a very rare case indeed where damages would be an adequate remedy; and (ii) reputational damage (and e.g. the impact on the remaining workforce if an injunction is refused such that others believe that they can breach covenants with impunity) may well not be capable of assessment as damages at all.

In short, I consider that the Supreme Court’s decision in Tesco has made it (much) harder for employees or employers successfully to argue that damages would be an adequate remedy in relation to employee competition injunctions. The balance of convenience will continue to be the litmus test.