Restrictive covenants, Brexit and the war for talent – why protecting your confidential information has never been more important
31 January 2018
In an age of artificial intelligence and robotics and where electric cars are now a reality, restrictive covenants in employment contracts are essential armour for any employer. Certainly for Dyson Technology Limited (DTL), where the engineer involved in developing an electric car resigned to join a competitor, Tesla, these contractual provisions were essential for its protection. A successful application for an injunction by DTL enabled it to safeguard business critical information. This case serves as a reminder that fit for purpose drafting of restrictions is key to protecting the legitimate commercial interests of a business: Dyson Technology Ltd v Pellerey  EWHC 3000 (Ch)
Factors affecting enforceability
Of course, not all restrictive covenants will be easily enforced. It is well established in case law, as set out in TFS Derivatives Ltd v Morgan  EWHC 3181 (QB) and applied in this case, that when deciding the issue of enforceability, it is important to look at four key elements. These are:
- Interpretation of the contract itself. Is the meaning of the clauses apparent and the scope easily understood?
- The breadth of the restraint. Is it wider than reasonably necessary for the protection of the company’s legitimate business interests? It is worth noting here that the fact the contract might contain a separate clause restricting the disclosure of confidential information did not prevent a non-compete clause from being regarded as reasonable.
- Will the proposed actions of the employee infringe the covenants?
- Should the court exercise its discretion to grant an injunction? This required consideration of all the facts. Unfortunately for Mr Pellerey, the court considered that he had “acted unwisely” and breached his contractual duties to DTL when failing to inform them at the time he was asked to work on their electric car project that he had already accepted a conditional job offer from Tesla.
The court was therefore satisfied in this case that the grant of an injunction was appropriate.
With the imminence of Brexit in the next 12 months, the competition amongst employers to attract and retain the most talented of employees will continue to gain momentum. The savviest employers should therefore be auditing their contracts and reviewing their restrictive covenants as well as their systems and controls to ensure they afford the right protection to those in business critical and revenue generating roles. This will be an issue particularly in sectors such as financial services, pharmaceuticals, start-ups, the motoring industry (as highlighted here) and digital specialists.