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The High Court recently refused to grant an interim injunction in support of an alleged non-compete covenant, in particular because of the initial approach taken by the employer upon finding out the employees were working for a competitor.

Affinity Workforce Solutions Ltd (“Affinity”) and Tradewind Recruitment Ltd (“Tradewind”) are competitor recruitment agencies for the education sector. The nature of their business is such that being the first port of call for clients and education staff is an important advantage; as Snowden J recognised (at [5]): “That position is hard-won and valuable, and the result of the forging of personal relationships between employees of the recruitment agency and the schools and candidates over time”. 

Affinity’s application concerned a number of its former employees, all of whom were now working for Tradewind. Following dismissal for alleged gross misconduct, one employee commenced work for Tradewind on 20 June 2019; eight other former employees of Affinity also started to work for Tradewind between 29 July and 5 August 2019. Affinity’s solicitors sought contractual undertakings from the former employees concerning non-use of confidential information and non-solicitation, but did not seek to prohibit them from working for Tradewind. Undertakings were negotiated in agreed form by 24 September 2019. However, on 26 September 2019, Affinity’s solicitors indicated that they instead would issue proceedings seeking to enforce a non-compete restriction. 

Affinity’s application for an interim injunction to prevent the employees from working for Tradewind pending trial came before Snowden J in early October. 

Interim Injunction to Enforce Restrictive Covenants

Snowden J applied the test set out in American Cyanamid [1975] AC 396. He recognised (at [23]):

whilst the grant of an injunction to enforce an employee’s negative covenant after a trial is a discretionary remedy, the starting point for the court is that the ordinary remedy to enforce such a covenant is to grant an injunction and thereby hold the employee to their contractual bargain. The burden of showing why it would be unjust or inappropriate to grant such an injunction lies on the employee: see Dyson Technology v Pellerey [2016] EWCA Civ 87 … at [74]-[75]”.

Nevertheless, the “categories of considerations that might lead a court to decline to grant an injunction after a trial are not closed, and the case does not have to qualify as “exceptional” before an injunction might be refused” (at [24]).

In addressing whether there was a ‘serious issue to be tried’, the most significant question was whether the non-compete covenants had been validly incorporated in the employees’ contracts of employment. The position differed between the employees, and Snowden J considered the various facts at [28]-[34]. In respect of two of the employees, the non-compete clause had been included in terms sent to them subsequent to their employment under cover of a letter that wrongly stated that the new terms made no material change to the terms and conditions of employment; it was unclear whether the new terms had ever been signed. Moreover, one of those employees contended she had been wrongfully dismissed, such that Affinity had in any event repudiated her contract of employment. Snowden J recognised that this gave rise to “plainly arguable” points which “would present a number of legal and factual hurdles which Affinity would have to surmount” ([38]). There was, nevertheless, a ‘serious issue to be tried’ ([40]). 

It was accepted that damages would not be an adequate remedy for either side ([45]). Accordingly, the Judge turned to consider the ‘balance of convenience’. In this context, Snowden J considered Toulson LJ’s judgment in Thomas v Farr plc [2007] ICR 932, addressing whether a non-compete covenant was valid in light of the circumstances at the time that the contract was entered into; he considered that “the same considerations must also be relevant when the court is considering the discretionary question of whether an injunction should be granted to enforce a valid covenant in light of the situation at trial” (at [48]).

On the present facts, Snowden J considered that there would be a very real prospect of the court being persuaded not to grant an injunction after a trial, for the following reasons:

-          For a significant period after it was known that the employees were working for Tradewind, the remedy which Affinity pursued was to obtain undertakings narrower than the broad non-compete covenants now alleged to exist ([52]). In agreeing specific undertakings, Affinity must have accepted that (i) it was possible to identify with sufficient precision the matters required for protecting its legitimate business interests ([53]); and (ii) the ex-employees could be relied upon to honour those undertakings ([54]).

-          The employees were prepared to give undertakings to the Court, rather than simply in contract, exposing themselves to the potential sanction of contempt proceedings ([59]). Those protections to Affinity must be set against the obvious hardship and disruption to the employees of putting their continued employment at Tradewind at risk.

Those considerations were all the more powerful at the interim stage when it was uncertain whether Affinity would succeed in establishing the contractual basis for its claims against the individual employees at all ([62]). It followed that the balance of convenience did not favour the grant of an interim injunction.

In any event, the position would be “put beyond doubt by consideration of the relevant status quo([64]). Affinity effectively permitted the employees to establish new business relationships at Tradewind, and that now constituted the current status quo. The Judge held ([64]): “I would be reluctant to disturb that new situation except on clear evidence that it was necessary to do so to provide sufficient protection to Affinity for its legitimate interests. There is no such evidence”.

 Conclusion

The judgment is a stark reminder of the importance of the initial response by the employer and employees once it is first believed that there may be a breach of a restrictive covenant. Snowden J did not have to consider the hypothetical situation where Affinity had immediately, upon the employees’ commencement of employment with Tradewind, sought to enforce the alleged non-compete restrictions; however, his reasoning for refusing the interim injunction provides an indication that the outcome may well have been different. 

The full judgment can be read here.

Clerks

Staff