Restrictive Covenants in Employee Contracts

It is often the case that businesses will place restrictive covenants within their employee contracts. Restrictive covenants restrict a former employee’s future commercial activities as a means of allowing the employer to protect its business after that employee has left. They are often utilised within the contracts of senior executives or employees with access to confidential information, or those who have key relationships with clients or customers, suppliers or other employees.

 

In the recent case of M&E Global (Staffing) Solutions Limited and Another v Tudge and Others, a company won a High Court injunction after it suspected that a former employee and a current employee were planning to set up a rival company and take away a lucrative contract. M&E Global (Staffing) Solutions Limited derived a proportion of its business by providing skilled workers to defence installations in Europe. The company became suspicious after it was made aware that misinformation was being spread to its workers that it was ‘finished’ and that the company was under investigation for fraud.

 

The company’s suspicions were focused upon a former employee and an existing employee who had worked closely together and were friends. It suspected that the pair were intending on establishing their own business, luring away some of its workers and taking over one of its most lucrative and important contracts. The company found that the existing employee had sent a string of emails to his friend, which contained confidential details of business opportunities, tax arrangements and pay structures which would be of obvious use to a competitor.

 

It was also alleged that the existing employee was updating his CV at the same time as sending those emails and was clearly intending on leaving the company. He remained subject to a restrictive covenant, which required him not to engage in competing activities for six months after his departure.

 

The Company made an emergency application to the High Court for an interim injunction and the court granted it finding that the company had raised a serious issue and that injunctive relief was justified. As part of the pre-trial order the two men were required to hand over any confidential information belonging to the company that was in their possession and in addition were forbidden to make contact with any of the company’s workers.

 

This case illustrates why restrictive covenants are placed within employee contracts as well as showing that the courts will support such covenants by allowing the use of injunctive relief when faced with a potential breach.

 

To discuss restrictive covenants or any other employment law matter please call 01453 847200 or visit one of our offices in Stroud, Dursley, Gloucester or Nailsworth.

 

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