August 6, 2018
Every sensible business owner is aware that today’s trusted employee may become tomorrow’s competitor. However, as a High Court ruling showed, with the right legal advice and professionally drafted employment contracts, powerful steps can be taken to discourage disloyalty.
The case concerned a company that specialised in providing sports-related tours and holidays. Following a breakdown in relations between its managing director and its operations manager, the latter was first suspended, then summarily dismissed, following an internal disciplinary investigation. During the six months following termination of his employment, he was also banned from enticing, inducing or encouraging any of the company’s clients or supplies to shift allegiance.
What happened next?
A new company was incorporated three days after his suspension, and the manager became its sole director and shareholder shortly after he was sacked. His company had since operated in direct competition with the company that formerly employed him. After seeking legal advice, the company launched proceedings against the manager, alleging breach of the covenants and misuse of confidential information.
In ruling on the matter, the Court noted that the company, like any other business, must compete in the free market. However, the manager had held a senior position and the company clearly had a legitimate interest in protecting its trade secrets, in particular its lists of customers and suppliers. The manager was entitled to use his experience and know-how in order to compete with the company, but the six-month period of restraint on his freedom to do so was, in the circumstances, very modest and reasonable.
The Court found that the manager had in several respects breached the terms of the restrictive covenants, When helping to set up the rival, he had also gained a competitive springboard by the wrongful use of the company’s confidential information, He was ordered to pay the company between £12,929 in damages , the majority of that representing the sum that he would reasonably have been required to pay in order to achieve release of the covenants. Having procured the manager’s breaches of contract, the rival was made jointly and severally liable for £10,000 of that award.
Our Employment Specialist, Lucy Watson, comments “this High Court decision highlights the importance of having well drafted restrictive covenants within senior employees contracts of employment. Well draft restrictive covenants can help protect your business interests when senior employees leave the business”.
If you have an employment query or would like to speak to our Employment Specialist about Contracts of Employment, call Tayntons Solicitors on 0800 158 4147 to book a 45 minute initial consultation meeting.
Team Tours Direct Limited v Aspire Sports Tours Limited & Anr. Case Number: D40CF007