Is the covenant likely to be enforceable against X? If so, what remedies would be available?
STRUCTURE	Explain the law in general, briefly “A restrictive covenant restraining an ex-employee from working in a competing business or soliciting ex-customers is prima facie void as being in restraint of trade. An employer is not entitled to protect himself against competition as such; he must have an interest to protect” Take each clause and employee separately and explain: Whether the clause would address the employer’s concerns about this employee if it is valid Whether the employer has a legitimate interest to protect for this employee Whether the clauses are reasonable on these facts in terms of: Subject matter (bearing in mind the employee) Time (bearing in mind the subject) Area (if relevant) How the ‘blue pencil test’ could operate (strike out certain bits of the clause) The employer’s remedies
LEGITIMATE INTEREST	The employer must have a legitimate business interest to protect. Legitimate business interests are: Trade secrets or other highly confidential information which ‘if disclosed to a competitor would be liable to cause real or significant damage to the owner of the secret which the owner had tried to limit dissemination of’ (Lansing Linde Ltd v Kerr) Example: Knowledge of special rates and discounts could potentially cause real or significant damage to the owner of the secret, as such prices could be undercut by the competing business or those prices could be disclosed to customers who are paying full rates Trade connections (e.g. employers’ relationships with their customers and clients (goodwill)); the employer will have to demonstrate that a breach would result in actual or potential harm to the employer’s business (Jack Allen v Smith) Example: Would X’s breach of the covenant cause actual harm to the company? Consider: Has he created close relations with the customers? Has he retained phone numbers/customer details? If so, the employee could use that information in a manner which causes harm to the employer’s business The employer’s interest in maintaining a stable and trained workforce (Dawnay, Day & Co)
IS THE CLAUSE REASONABLE?	Is the clause reasonable in terms of: Subject matter? The clause must be no wider than is necessary to protect the employer’s business Example: Companies that are not in direct competition with the employer – An owner of a coach company could not enforce a covenant preventing an employee working for a “coach company or any other tour operator” as this would be too wide to protect only the employer’s business. What about canal tours? What about tours abroad? They cannot stop the employee joining such companies as they are not direct competitors (this could give rise to ‘blue pencilling’ the latter part (see below)) Example: Excessively wide non-solicitation clause – An employer could not enforce a covenant preventing X from dealing with “anyone who has been a customer of, or dealt with, the employer” as this is too wide. This is as this is not just attempting to protect the employer from what X knows, it is going further and unnecessarily restricting X. The employer cannot exclude dealings with ALL customers, only the ones who X has dealt with directly (WRN v Ayris) Time? A time restraint in excess of one year can usually be justified only in exceptional circumstances One year may be too long in some cases, especially if the employer’s trade connections are subject to rapid change So 12 months is quite standard but still need to look at the nature of the contracts and their duration A 12 month duration would not usually be enforceable for an office junior (PAT Systems v Neilly) but would be for a director (Thomas v Far plc) Area? Must not be wider than the area within which the employer did business Consider competitors in the area The clause can only be valid if imposed on a person who has such information, for example a senior technical employee
BLUE PENCIL TEST	Sever the part of the clause that is too wide and leave the remainder as an enforceable clause Can only remove wording; cannot modify the wording of the other terms (Beckett v Hall) If it does not make sense after the deletion of the unenforceable bit, the whole clause is unenforceable
REMEDIES	Get an injunction before she discloses the information (although the employer would not usually know that the information had been disclosed until the breach occurred); or Claim damages (although it is often difficult to prove that the employee was the cause of the loss)
Is there any other way in which Y can prevent the disclosure of the information?
STRUCTURE	Express term Identify clause/explain that there is not an express clause Enforceable to the extent of the implied terms after employment Apply to the facts – does it cover the information in question? Implied term Differentiate between during employment and after employment Apply the elements of Facenna Chicken Conclude on whether the information is protected Likely remedies on the facts
EXPRESS	...

#9715 - Covenants In Restraints Of Trade Model Answer - Employment Law

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