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Are Restraint of Trade Clauses Enforceable in the “Information Age”?

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Posted by Wolferstans Admin on 29th January 2014

The purpose of restraint of trade clauses or restrictive covenants is to protect employer’s interests, particularly when a key member of staff leaves the organisation. These clauses are commonplace in contracts of employment, with most employers keen to protect their confidential information and prevent former employees acting in competition with their business. I regularly advise both employers and employees on the enforceability of such clauses.

A typical example of such a clause would seek to prevent an employee from acting in competition with their former employer for a period of 6 months following the termination of their employment. Whether such a clause is enforceable, will depend upon the precise wording and particular facts of the case. As a general principle, restraint of trade clauses will only be enforceable if they go no further than is necessary to protect an employer’s legitimate business interests. However, more recently I have received enquiries as to whether certain information and activities are capable of protection in light of the advances in social media. For example, the contact details of valuable clients or customers can often be obtained from their organisation’s website and there is a multitude of additional information available from sites such as Linkedin, Twitter and even Facebook. It has always been the case that if information is in the public domain, then it cannot amount to confidential information capable of protection. So, with this wealth of information freely available, is it worth including these types of clauses in contracts of employment and will they be enforced if an employee is taken to Court? My view has always been that these type of clauses are worth including if you have a legitimate business interest to protect and providing they have been carefully drafted. This view has been confirmed in a couple of recent cases. During December 2013, in East England Schools –v- Palmer, the High Court was asked to decide whether employee’s relationships with clients are still capable of protection even in the “information age”. Ms Palmer was employed as a Recruitment Consultant and her task was to match teachers with vacancies at secondary schools in Essex. Clause 15 of her contract of employment contained covenants preventing her from soliciting or dealing with “candidate teachers” or “client schools” with whom she had dealt with in the last 12 months of her employment, for a period of 6 months following the termination of her employment.

On 2 April 2013, Ms Palmer left East England Schools and commenced work for a competitor, Sugarman Education. Ms Palmer’s former employer discovered information suggesting that she was acting in breach of her covenants. Following correspondence between respective solicitors, the matter proceeded to Court. East England Schools alleged that Ms Palmer had built up close relationships with “candidate teachers” and “client schools” during her employment, and that she was now in breach of her contract of employment when soliciting and dealing with the teachers and candidates. Ms Palmer argued that she did not build up close relationships with the schools or teachers and that with the development of the internet and social media, all relevant information was now in the public domain and therefore incapable of protection. The High Court made findings of fact in support of the arguments raised by Ms Palmer, including that this particular market was highly driven by the client candidates, and that there was little loyalty with the recruitment consultant. The Court also agreed that most of the information referred to, was publicly available and therefore incapable of protection. However, the final decision was still in favour of East England Schools. The Court held that the employer still required protection, and that while much of the information referred to may have been in the public domain, Ms Palmer would have been privy to certain confidential information which was not publicly available.

The claim was issued against both Ms Palmer and Sugarman Education. Sugarman Education argued that they were not aware of the covenants in Ms Palmer’s contract, and that therefore they should not be liable for the alleged breaches. However, during the Court Hearing, Mr Wheeler of Sugarman Education admitted that he was not aware of any recruitment consultant who was not subject to some form of restrictive covenant. On this basis, the Judge held that Mr Wheeler would have known that Ms Palmer was likely to be the subject of some form of post termination restrictions and that instead of taking reasonable steps to make himself aware of those restrictions, he chose to give instructions to Ms Palmer which could well require her to act in breach of those restrictions. Ms Palmer and Sugarman Education were ordered to pay damages of £7,040, plus interest from the date of each placement to the date of the Judgment. This case serves as a timely reminder to both employees and employers, that even in the “information age” legitimate business interests are capable of protection and will be enforced in the right circumstances.

James Twine Partner, Head of the Employment Team

Tel: 01752 292351 E

mail: jtwine@wolferstans.com