Seven HR

Reasonableness post employment restrictions

A recent case has helpfully re-summarised the issues facing the courts when considering the enforceability of restrictive covenants designed to prevent competition from ex-employees.

A non competition clause prevents a former employee working for a competitor for a fixed period of time post termination. Traditionally they have been more difficult to enforce than other types of restriction as they present a more serious restraint of trade. However, the current trend of the courts has been towards enforcing such restrictions.

The basic position remains that the former employer must have a legitimate business interest which requires protection and the restriction must be no more than is reasonably necessary for the protection of that interest.

In Norbrook Laboratories (UK) GB Ltd v Adair (1), Pfizer Ltd (2) 2008 EWHC 978 , the High Court considered the case of Ms Adair who had worked as a Sales Manager for Norbrook Laboratories, a pharmaceutical company, for a period of just over 1 year. Her post termination restrictions included a non competition restriction preventing her from working for a period of 1 year after termination of employment in a business whose products competed with Norbrook's, and where Ms Adair had been concerned with those products in the last 5 years of her employment. Her contract also prevented her from soliciting Norbrook's customers and prospective customers for a period of 1 year following termination of employment. This restriction was limited to customers and prospective customers with whom she had had direct access or dealings within the last 2 years of her employment, or where she had confidential information in relation to them.

After resigning Ms Adair went to work for Pfizer Ltd (Pfizer) another pharmaceuticals business. Norbrook sought to rely upon their post termination restrictions, which Ms Adair argued were wider than reasonably necessary and that 12 months was too long a restrictive period. In addition, she claimed that the level of her salary (£25,000 per year) was an indication that she wasn't a senior person in the business and therefore the restrictions weren't justifiable.

The court found that the usefulness of confidential information to a competitor would last a period of 12 months and that there was a risk that confidential information may be revealed irrespective of the position held by Ms Adair within Pfizer. However the Court found that most sales and sales related information has a limited shelf life and so a restriction by reference to products with which the employer was “concerned” in the last 5 years was unreasonably wide.

Ultimately, the High Court did not enforce the non competition covenant.

However, what we can draw from this case appears to be:

- despite the outcome, the reasoning does support the general flow of case law towards enforcing non competition restrictions;

- the Court was not persuaded that a non solicitation covenant would have been sufficient to protect Norbrook's interests, which is the common argument used by employees seeking to work for a competitor;

- seniority and salary level is not significant when considering the reasonableness of a non competition clause in a contract of employment, and that employees should not always assume that non competition covenants are suitable for high earning employees only.

This is good news for employers who spend significant time drafting non competition clauses only to find them being routinely challenged by departing employees. However, it tends to hammer home the need to apply your mind to each and every individual contract of employment and the reasonableness of restrictions included within them in respect of each individual employee. The use of stock, or “blanket” clauses in respect of every employee remain most vulnerable to challenge. In short, there is no substitute for carefully considered, bespoke clauses and regular reviews to keep existing clauses up to date.

For more information contact any member of the employment team.

Angela Brumpton

Solicitor

Gordons LLP

 

Data protection: increase in the Information Commissioner's powers

Have you heard the one about …

…the university lecturer who fell foul of data protection rules when he gave an enraged parent a list of modules his student was taking in an attempt to allay fears about her son's tuition?

This case evidenced how easy it is to disclose personal data and that disclosures are no joking matter. The sanctions for those who lose or disclose personal information have, however, left bystanders laughing in astonishment in a number of recent high profile information security breaches.

Currently, the Information Commissioner's powers are limited to regulating future behaviour by issuing enforcement notices and ‘stop now' orders.

When the Criminal Justice and Immigration Act 2008 comes into force, this is all set to change. The Information Commissioner will be given much needed and long awaited powers to impose monetary penalties on those who seriously breach the Data Protection Act 1998.

In addition to this, custodial sentences of up to two years will be introduced for unlawfully obtaining or disclosing personal information in an attempt to deter the illegal trading of such data.

If you have any queries about protecting your business from breaching data protection rules please contact any member of the Employment Law team by phone on 0113 2270100 or by visiting our website.

Joanne Houseman

Solicitor

Gordons LLP