Restrictive covenant - employee advice

[SPD13]

Good afternoon guys,

I'm looking for a bit of advice about a situation, which I'm pretty nervous about, referencing restrictive covenants in my employee contract.

I am on a graduate development program, fixed contract for two years which naturally concludes at the end of August. As the company has not got a position available for me, I applied for positions I was interested in in similar businesses, interviewed and got offered a position at one of my current employer's main competitors.

I told the company of my new job and handed in my notice, to be made aware that I had signed a contract with restrictive covenants included and that should I start my new job the company would pursue me for breach of contract and sue the new employer for damages. Now all of this is pretty scary, I've not long been out of University, I'm in a junior position and could be left without a job.

The restrictive covenants and the clause are quoted below. Everybody in my business (a large multinational) that I have spoken to regarding my situation from people on my level all the way up to business unit directors say they are 100% in my favor and think the whole thing is silly, but it is company policy to pursue regardless and nothing they can so or do to help.

My arguments for the restrictive covenants being unfair (and perhaps I am being naïve here) are my age, my level of access to information in the company and my actual level within the company, the fact that I have only been working in this particular business unit for 5 months, my current responsibilities being largely admin and some limited proactive sales and my future role being entirely supplier facing (purchasing assistant) which I have had no interaction with suppliers in my current business.

My concern is the new employee will withdraw their offer if I can't start as intended, but if I start my current employer will sue me for breach. I'm sort of looking for information on what happens if I start knowing I'm breaching the contract, what is the worst case scenario and what is the likelihood my current employer would be successful in enforcing the covenants. I know that is all subjective and nobody can know for sure until the day, but I've got to make a decision whether I give up the job offer or I risk being sued.

Seriously guys, any help or advice that you can offer is 100% appreciated. And if I've missed anything out, please let me know and I'll do what I can to advise.

1. Without prejudice to Clause 2.3 you shall not without the prior written consent of the Company directly or indirectly at any time within the Relevant Period engage or be concerned or interested in any business within the Relevant Area which (a) competes or (b) will at any time during the Relevant Period compete with the Business. Nothing in this sub‑clause shall prevent you from being or becoming a Minority Holder provided that you disclose this to the Company.
2. You shall not, other than during your employment in the ordinary and proper course of your duties and for the benefit of the Company, without the prior written consent of the Company directly or indirectly at any time within the Relevant Period:-
   1. solicit the custom of; or
   2. facilitate the solicitation of; or
   3. deal with any Relevant Customer in respect of any Relevant Goods and Services; or
   4. solicit the custom of; or
   5. facilitate the solicitation of; or
   6. deal with any Prospective Customer in respect of any Relevant Goods and Services; or
   7. interfere; or
   8. endeavour to interfere with the continuance of supplies to the Company and/or any Group Company (or the terms relating to those supplies) by any Relevant Supplier.
   
   
3. You shall not without the prior written consent of the Company directly or indirectly at any time during the Relevant Period:-
   1. entice away from the Company or any Group Company; or
   2. endeavour to entice away from the Company or any Group Company; or
   3. employ or engage any Key Personnel.
   
   
4. You acknowledge that because of the nature of your duties and the particular responsibilities arising as a result of such duties you have or will have knowledge of Confidential Information and have/will have developed relationships with and have knowledge of and influence over the Group's customers and staff and are therefore in a position to harm the goodwill and interests of the Company and any Group Companies (the "Interests") if you were to make use of such Confidential Information or knowledge or influence for your own purposes or the purposes of another. Accordingly, having regard to the above, you acknowledge that the provisions of this Clause are fair, reasonable and necessary to protect the Interests. Whilst the provisions of this Clause 15 have been framed with a view to ensuring that the Interests are adequately protected taking account of the Group's legitimate expectations of the future development of the business, you acknowledge that the business may change over time and as a result it may become necessary to amend the provisions of this Clause in order to ensure that the Interests remain adequately protected. You, therefore, agree that the Company shall be entitled to amend the provisions of this Clause in accordance with Clause 15.6 below in order to protect the Interests.
5. In order to amend the provisions of this Clause, the Company shall notify you in writing of why it believes it is necessary to amend this Clause and the amendments which it proposes. You shall then have a period of 14 calendar days in which to put forward any objections which you might have to the proposed amendments. In the event of that you do not put forward any such objections, this Clause shall take effect with the proposed amendments on the expiry of the 14 day period. In the event that you do put forward any objections, the Company shall endeavour to accommodate them, insofar as they are reasonable and where reasonably possible, given that the Company's overriding objective must be to ensure adequate protection of the Interests, to agree the amendments with you. The Company shall then, having considered your objections, serve a further written notice on you informing you of the final amendments to this Clause which will thereafter take immediate effect.
6. You acknowledge that the provisions of this Clause 15 shall constitute severable undertakings given to the Company for itself and for the benefit of and as trustee for each of the other Group Companies and the said undertakings may be enforced by the Company on its own behalf and on behalf of any of the Group Companies. Each of the obligations in this Clause 15 is an entire separate and independent restriction on you. If any part is found to be invalid or unenforceable the remainder will remain valid and enforceable. If any of the restrictions or obligations contained in this Clause is held not to be valid on the basis that it exceeds what is reasonable for the protection of the goodwill and interests of the Company or any Group Company but would be valid if part of the wording were deleted then such restrictions or obligations shall apply with such deletions as may be necessary to make it enforceable.
7. You acknowledge and agree that you shall be obliged to draw the provisions of this Clause to the attention of any third party who may at any time before or after the termination of your employment offer to employ or engage you and for whom or with whom you intend to work during the Relevant Period.
8. You shall, at the request and cost of the Company, enter into a direct agreement or undertaking with any Group Company to which you provide services whereby you will accept restrictions corresponding to the restrictions in this Clause (or such of them as may be appropriate in the circumstances) as the Company may require in the circumstances.
9. You agree that if the Company transfers all or any part of its business to a third party (the "Transferee"), the restrictions contained in this Clause 15 shall, with effect from the date that you become an employee of the Transferee, apply to you as if references to the Company include the Transferee and references to any Group Company include any Group Company of the Transferee.

[wales01man]

Re: Restrictive covenant - employee advice

Have the Company paid for you to get the Qualifications you have?

[SPD13]

Re: Restrictive covenant - employee advice

No, I did University myself (and have the lovely £40k debts to prove it) the graduate development scheme has purely involved four 6 month work placements, for which I have been paid a full wage.

[wales01man]

Re: Restrictive covenant - employee advice

There are Posters on here who when online will give some advice .

[Johnboy007]

Re: Restrictive covenant - employee advice

The problem that I see is stated at the very start of the restrictive covenant.

1. Without prejudice to Clause 2.3 you shall not without the prior written consent of the Company directly or indirectly at any time within the Relevant Period engage or be concerned or interested in any business within the Relevant Area which (a) competes or (b) will at any time during the Relevant Period compete with the Business. Nothing in this sub‑clause shall prevent you from being or becoming a Minority Holder provided that you disclose this to the Company.

You did agree to this restriction and you have signed your name to this effect.
I would request in writing from the company, permission to work for a rival company.
You should state all relevant facts, as to why it will not effect your present company in any way.
Also point out the fact that your present contract is about to expire, and that having no job, will seriously effect your financial position.
Ask them to extend your contract if they are unwilling to make an exception in your case.

[SPD13]

Re: Restrictive covenant - employee advice

Hi, thanks for coming back to me.

I've put my case to the HR team who are the decision makers in writing, twice, who have categorically stated that due to who the competitor is they will not give permission nor negotiate on the issue. If it was a different competitor they would consider it. I have also kept the new employer updated with any developments, including the statement that they too would be pursued for damages. They have still said, start as intended or don't start at all.

I agree 100% that I signed the contract, and it is for that reason I have done my best to remain calm and level headed throughout the process even though I'm scared of what's going to happen - when all my colleagues are asking why I'm not screaming and shouting like they would do.

I've given up my flat here (150 miles away from the new job) as I don't have a job here, so I'm effectively jobless and homeless at the end of the month unless I move to the new employers and take the job there or move back in with the parents.

[Johnboy007]

Re: Restrictive covenant - employee advice

Hi, thanks for coming back to me.

I've put my case to the HR team who are the decision makers in writing, twice, who have categorically stated that due to who the competitor is they will not give permission nor negotiate on the issue. If it was a different competitor they would consider it. I have also kept the new employer updated with any developments, including the statement that they too would be pursued for damages. They have still said, start as intended or don't start at all.

I agree 100% that I signed the contract, and it is for that reason I have done my best to remain calm and level headed throughout the process even though I'm scared of what's going to happen - when all my colleagues are asking why I'm not screaming and shouting like they would do.

I've given up my flat here (150 miles away from the new job) as I don't have a job here, so I'm effectively jobless and homeless at the end of the month unless I move to the new employers and take the job there or move back in with the parents.

I would start a grievance with your company.
HR should not be part of the grievance procedure, as it is a company/employee procedure.
Put your grievance to the company, not HR.
The company must respond to you.
If you are not happy with the reply, then put in an appeal.

[stevemLS]

Re: Restrictive covenant - employee advice

There is quite a bit of case law on restrictive covenants in employment contracts.

What they boil down to is that the restrictions must be reasonable in scope, geography and duration.

So, what does your contract define as the Relevant Area and the Relevant Period? They are capitalised which suggests that they are defined terms, but that the definitions may be elsewhere.

I am casting my mind back some years, but vaguely remember cases about solicitors clerks being restricted from working as such and the court saying whilst it may be reasonable to impose a restriction from working in that capacity within say a 10 mile radius it may not be for the whole of the UK.

Contracts in restraint of trade are generally void as being contrary to public policy. In these instances, it is for the employer to prove that the restriction is necessary and reasonable in pursuit of a legitimate interest.

In Forster & Sons Ltd v Suggett (1918) a manager in a glassworks agreed in his contract that he would not for five years after he left take any employment or other interest in glass making - the court held that it was for the employer to prove the servant/employee had acquired "substantial knowledge" of some trade secret in order for the restrictions to be enforceable.

In Dewes v Fitch (1920) Romer LJ said "It is, in my opinion established law that where an employee is being offered employment which will probably result in his coming into direct contact with his employer's customers, or which will enable him to obtain knowledge of the names of his employer's customers, then the covenant against solicitation is reasonably necessary for the protection of his employer." That is one case which suggests what is reasonable but from what you have said about the nature of your current duties, your employer is likely to be unable to satisfy that test - and if he can't, then the flip side of what is reasonable applies, as in it will be unreasonable.

Sorry for the length, but this is a complicated area of law - however, from what you have said about the type of work you do, it seems to me that the contract you signed may well have those restrictive elements of it declared to be void and severed from the agreement.

It is important to remember though, that this type of restriction are prima facie void and it is for the employer to prove their reasonableness.

This is one of the few areas of contract law when common law public policy considerations intervene.

Good luck with it and forgive any typos, long day.

Steve

[des8]

Re: Restrictive covenant - employee advice

Hi
Having read your post, I wonder how long the Relevant period is?
12 months and it is IMO over restrictive.
Bearing in mind your junior position, your lack of contact with clients etc etc I believe your current employers would not be received well in court if they tried to enforce these covenants,
To be enforceable your current employer has to show the clause(s) is(are) justified and sufficiently narrow. The clause(s) must be relevant to the employees position within the organisation, so a one size fits all restrictive clause risks being unenforceable.
Here's more about restrictive covenants:
http://natemplaw.co.uk/portfolio/emp...ive-covenants/
Read here to see how courts view these types of overkill:
http://www.doyleclayton.co.uk/blog/p...ition-covenant

PS I speak from personal experience, back in early '70s, when an EXemployer uttered all sorts of threats. Called their bluff and they backed down,

Might be worth consulting a specialist lawyer for advice.


Delayed in posting by interrupting phone call & so crossed with Stevemls

[Johnboy007]

Re: Restrictive covenant - employee advice

I also think that the employer would have a very difficult time, trying to prove that your move has been detrimental to his business.
And if it went to court, that is exactly what he would have to show.
Steve and Des have made very valid points.
If you are sure that your move would not be detrimental to your current employer, then call their bluff.

[ostell]

Re: Restrictive covenant - employee advice

Well they can't sue your prospective employer as they are not party to the agreement. What would happen is they did attempt to sue you? They can't send you to prison and as a lowly paid employee you haven't the funds to pay any compensation, but this could be described as a penalty which is not allowed. You seem to have a HR department that likes the seeming power they have but not a lot of common sense.

I would move and not worry.

[des8]

Re: Restrictive covenant - employee advice

The new employer COULD be sued for poaching if the ex employer can show that the employee was offered inducements to breach a restrictive covenants.
Lots of expensive hoops to jump through and I suspect the new employer knows this.
It appears OP was not poached, but voluntarily approached the new employer as his current placement was ending and he was about to be unemployed.
No inducements offered.... no case for new employer to answer.

Re the op, the employer COULD (but probably won't) apply for an injunction whilst a case is prepared.
He then has to show loss caused by the breach, and if the op's position is as described it is difficult to envisage what losses they could suffer.
There would then be a counterclaim by the OP for unlawful restraint of trade causing loss of earnings.

Expensive business

[Johnboy007]

Re: Restrictive covenant - employee advice

I very much doubt if the employer would even contemplate court action.

[Abo]

Re: Restrictive covenant - employee advice

I'm no a legal expert, however I am a director of a UK subsidiary of a US company.

In general, our belief seems to be that covenants are hard to enforce, need to be written carefully so as not to be unreasonable and are of most use against senior employees. HR see them as largely useless from an enforcement perspective. We do however take a more aggressive stance on continuing obligations of confidentiality.

You state that you are relatively junior and young - I just cannot see litigation happening in this case unless you have a vindictive employer. It would simply cost them too much and they would probably lose.

You should, of course, take advice if you are worried. Have you any insurance coverage that could fund this?

[steampowered]

Re: Restrictive covenant - employee advice

After reading through a table setting out clauses which have and haven't been enforced by the courts in recent years, I am confident to say that clause is almost certainly not enforceable. These clauses get very closely scrutinised by the courts and have to be reasonable in scope/duration/geographical reach.

The clause is much too broadly drafted. The drafting prohibits you from being concerned or interested in any business which competes or will compete with their business. See this http://www.bailii.org/ew/cases/EWHC/QB/2012/1524.html for an example of a situation where such a clause was struck down.

I also think it is pretty unreasonable to have this clause in relation to a junior employee, unless there is a genuine risk that you might use the employer's confidential information to pinch clients. They would need a really incredibly good justification to have any chance of being able to impose that close on a recent graduate.

I would call their bluff on this and go to work for the new employer without making any more contact with them. I imagine the chances of them taking this to court, particularly when they have a low chance of success, is pretty low. If challenged, I would write to them saying you take the view that this clause is completely unreasonable and therefore unenforceable. However do consider whether you would need a reference.

What is the duration of the 'Relevant Period'? I think this clause would fall at the first hurdle anyway regardless of the time limit, but if it is longer than six months that would be yet another reason to challenge it.