The obligation to notify competing employment
DYSON TECHNOLOGY LTD v. PELLEREY (HIGH COURT)
Ever wondered what the point of some of the more esoteric terms in restrictive covenants are really for and, frankly, whether there is much point to them? We at Spencer West LLP often hear corporate clients say, ‘restrictive covenants are unenforceable anyway, so why bother having them?’
A recent case shows the power of such clauses if they are structured appropriately and the right clauses compliment one-another.
This case is the first to give injunctive relief where a departing employee failed to notify his employer that he had been offered fresh employment with a competing business or to notify the new employer of the existence of his obligations, post-termination.
In brief, the employee’s contract had a prior notification provision requiring him to inform his employer if he received and/or accepted an offer of employment from a potentially competing business along with a further requirement that he put his new employer on notice of the restraints in his contract. The employee received an offer for a similar role in a similar activity from a competing business and accepted it on condition that a visa for him to live and work in the US, could be obtained.
Whilst awaiting the outcome of his visa application, the employee became privy to secret plans of his current employer for a new project. This information was commercially sensitive and potentially highly commercially beneficial to his putative employer. The employee said nothing of his acceptance of the conditional offer of employment.
The notification clause complimented both a confidential information provision and a 12-month non-compete, two types of covenant that are often utilised to protect against competition from exiting/former employees. It’s possible that without the accompanying provisions, the notification provision may have been unenforceable since the purpose is to equip the employer with knowledge that will enable it to take steps to protect its interests and without at least an express confidentiality provision, the notification provision may serve little practical purpose.
Despite his efforts to argue that the notification clause amounts to an unlawful restraint of trade and is therefore unenforceable, the court decided that it was no such thing and in fact did not have the effect of preventing the employee moving into new work. The commercial purpose of the provision was not to restrain the employee but rather to ensure the employer can prevent leakage of its confidential information and to give due efficacy to the 12-month non-compete.
In conjunction with the notification provision the court found that the requirement to also notify the future employer of the existence of the non-compete clause was commercially justified since it placed the putative employer on notice and would mean that any breach of the non-compete could potentially be visited on the new employer, too, for inducement of breach of contract.
The notification clause may be regarded as the linchpin around which the other restraining provisions operate and giving the latter commercial efficacy.
The employer was given an injunction (so called “springboard” injunction) preventing the employee from taking up employment with the competing business for 12 months, concurrent with the restraint period under the non-compete provision.
For the sake of checking their contractual provisions and having them drafted in a careful and tailored manner, this case shows that for this relatively small effort, the potential value gained in protecting the business and its legitimate interests, can be significantly greater than the cost.