I am commonly asked whether restraint of trade provisions which seek to govern an employee’s conduct post-termination, are valid and enforceable. My answer is always the same – such provisions are void…. “unless they are proved to be reasonably necessary to protect a proprietary interest of the former employer”.
However, some of you also wonder what urgent and imminent steps can be taken to safeguard your business whilst the lawyers argue (at great expense) whether the provision is in fact “reasonably necessary”. This is a legitimate concern and one that was recently considered by the Employment Relations Authority in Crimson Consulting Ltd, Berry & Talent Wire Ltd.
Here, Ms B’s former employer (Crimson) sought to enforce a provision preventing her from lecturing and soliciting business in the student tutoring industry for her new employer (Talent Wire) for 12 months’. Crimson was concerned that she had actively begun to contact lecturers and students to promote her new employer’s business. There was a real possibility that her actions would encourage students to enrol with Talent Wire’s tutoring services, and this could be financially detrimental to Crimson.
Although the parties engaged in legal proceedings regarding the overall validity of the provision, Crimson was understandably concerned that the pending litigation was only delaying the resolution of what could, ultimately, be harmful conduct to its business. In the interim, Ms B was seemingly free to utilise contact lists and information that Crimson deemed was commercially sensitive, to the benefit of Talent Wire.
How could Crimson lawfully protect its position? – well, an application for “interim injunction” seems the logical next step.
Crimson applied to the Authority for an injunction preventing Ms B for continuing to work for Talent Wire pending the outcome of the substantive issue (that being the validity of the restraint of trade provision set out in the employment agreement). It argued that by allowing her to remain in employment, Ms B will continue to conduct herself in a manner which is detrimental to Crimson and advantageous only to Talent Wire. In response, Ms B argued that she will suffer a “great injustice” if the Authority grants the injunction and prevents her from being able to lecture (even if only for the duration of the litigation).
So, was the application worth it?
Not really! The Authority agreed with Ms B – it decided that the potential injustice to her far outweighed any potential loss that Crimson may suffer. There was no denying that harm may result to the business, however, it felt that the financial harm to Ms B could ultimately be much greater, and for this reason, refused the injunction.
This case is important because the Authority reaffirmed the legal principles that an applicant (in this case, Crimson) must satisfy to be successful.
Is there a serious question to be determined? In other words, does the substantive action have a real prospect of success. The Authority must be satisfied that there is at least a strong arguable case.
Where does the balance of convenience lie? The Authority will balance the potential injustice between the parties, the strength of each party’s case and the conduct of the parties themselves.
The overall justice of the case? This requires an overall assessment of the case and includes consideration of external factors such as progression of the matter to date, and state of the current litigation.
Considering the ‘principles’, the Authority decided that (based on the facts) the evidence does not strongly favour Crimson. In fact, the evidence seemed to indicate that the provision would need to be modified as to geographical area and duration (its current wording being ambiguous and wide-reaching, thus implying that it would be unenforceable).
Ms B would suffer the greatest injustice by granting an injunction. To do so, would prohibit her from earning living. She would be required to give-up job security and income.
Further, there has already been unnecessary delay in progressing the litigation to date and to grant an interim injunction may only serve to protract the proceedings further.
Clearly disappointing and worrying news for Crimson. The substantive issue has yet to be listed for a hearing date (although some time in the next two months is proposed). In the meantime, Ms B is obviously free to go-about her business without restriction and Talent Wire will no doubt reap the benefit. The extent of harm caused to Crimson remains to be seen and will not become clear until the cut-off date for enrolment expires.
This is alarming news. And, for those of you that are contemplating an interim injunction – word of caution – think twice, and look at the bigger picture. My advice is to make sure that any restraint of trade provision is adequately drafted from the outset – you will save yourself significant legal headache in the long-run. As this case just proves, interim ‘restraint of trade’ injunctions are not really worth it.