The enforcement of restrictive covenants in contracts of employment is almost invariably problematic and in many cases, the thinking behind such covenants is a desire by the employer at least to put commercial pressure on former employees to dissuade them from activities which the employer may consider to be damaging or potentially damaging to the business after termination of employment.
The underlying legal principle of English Law is that a restrictive covenant in a contract of employ- ment is void as being in restraint of trade. However, it may be upheld if it is considered to be reasonably required for the protection of the employer’s business and it is not too widely drawn and there have been recent examples of the Courts supporting employers in their efforts to enforce such covenants.
One form of remedy under English Law in this area which may be particularly helpful to an em- ployer in commercial terms is what is known as “Springboard Relief”. This is an injunction to prevent a former employee who has used confidential information or breached a restrictive covenant to his own advantage from gaining a head start in competition with his former employer. Its basis is that the court imposes the injunction in effect to neutralise an unfair advantage that the employee has obtained unlawfully.
In the recent case of Dyson Technology Limited v Pellerey, the High Court in England held that a springboard injunction was appropriate where an employee breached an express term in his contract which required him to notify his employer of an offer of employment with a competitor and as a result, he gained access to confidential information to which he would not have had access if he had complied with the notification term.
Background
Mr Pellerey worked for Dyson Technology Limited as a motor drives engineer, involved in designing the next generation of Dyson’s digital motors for its vacuum cleaners. His employment commenced in March 2013 and his contract of employment contained a restrictive covenant preventing him from competing with Dyson for a period of twelve months after termination of employment and the following notification provision:
« You agree that if any person approaches you in connection with offering you employment which is or potentially may be in competition with the Company or any Group Company, then you will immediately inform the Company of that approach. In addition, you will disclose to any new potential employer before accepting such an offer of employment the extent of your notice period and the obligations after employ- ment which you owe to the Company and any Group Company, and will con rm to the Company that you have provided that notification. »
in November 2014 Mr Pellerey was contacted by a recruiter from a leading manufacturer of electric cars based in the United States (Tesla). Some four months later, in March 2015, Tesla offered Mr Pellerey a job as a staff drive motor engineer, which he accepted, and Tesla began the process of applying for a visa for him. Mr Pellerey did not, however, inform Dyson of the conditional offer of employment he had received or the fact that he had accepted the offer.
Mr Pellerey continued in Dyson’s employment pending the outcome of the visa application but in May 2015 Mr Pellerey and two colleagues at Dyson were told that Sir James Dyson intended that the Dyson Group should develop an electric car and that they were to be assigned to this new project.
They were instructed that this was highly confidential and the project became known as “Project E”. It was accepted by the Court that Dyson’s concern regarding the sensitivity in commercial terms of Project E, was such that if Mr Pellerey had told Dyson that he had accepted a conditional job offer with Tesla and was waiting for visa clearance, he would not have been allowed to become involved with Project E.
In June 2015, Tesla made Mr Pellerey an offer of a job based in Europe, which avoided the problems with his US visa ap- plication and Mr Pellerey resigned from Dyson by giving due notice in accordance with his contract.
Legal Proceedings
Following Mr Pellerey’s resignation, Dyson commenced proceedings for an injunction to prevent Mr Pellerey from taking up employment with Tesla for a period of 12 months after the termination of his employment with Dyson. This was on two grounds:
- The enforcement of the covenant not to compete with the Company for a period of twelve months after termination;
- And springboard relief for breach of the notification term.
The High Court accepted that the commercial purpose of the notification term in Mr Pellerey’s contract was to ensure that Dyson became aware of any attempt to induce him to leave by an offer of competitive employment and for the prospective new employer to be made aware of the restrictions in the employee’s contract with Dyson. In this case, therefore, the Court considered that the notification clause became relevant when Mr Pellerey learned of the existence of Project E, at which point the employment Mr Pellerey had been offered by Tesla was likely to be in com- petition with Dyson.
Although Mr Pellerey argued that the notification term was invalid because it was an unreasonable restraint of trade, the Court considered that a clause of this nature does not actually restrict an employee’s ability to take a new job and the notification term in this case was drawn narrowly to limit it to a requirement to notify Dyson of an approach from a competitor, rather than being an overall requirement to notify Dyson of all approaches from prospective new employers. As such the clause was not therefore an unreasonable restraint.
The Judge acknowledged that in most cases of breach of a notification term, it would not be appropriate to impose an injunction to restrict the employee from taking up new employment. In this case, however, the breach by Mr Pellerey of this term in his contract meant that he had access to Dyson’s confidential information regarding Project E and he would not have learned of this information if he had told Dyson of the job offer he had received from Tesla.
Dyson sought only an injunction for the period of twelve months in the underlying non-compete covenant. However, it would have been open to the court to consider enforcing such a notification term for as long as any confidential information learned during the time whilst the employee was in breach remained confidential to the employer.
Clauses of this nature are not included routinely in contracts of employment but the value of such a provision is clear, particularly in the contracts of employment of key technical or business employees who may be exposed to critical and valuable confidential information, provided that careful consideration is given to limiting the scope of the restrictions to the extent only that may genuinely be required to protect the employer’s business and no further.
Jane Laidler
j.laidler@grm.co.uk
GRM LAW
1 Bedford Row, London WC1R 4BZ
Tel: +44 207 242 0631 – Fax: + 44 207 242 6652