Enforcing restrictive covenants

Employers who have restrictive covenants in their contracts of employment will appreciate the recent Court of Appeal decision in Dyson Technology Limited (Dyson) v Pellerey, where the Court of Appeal upheld the High Court’s decision to grant an injunction to Dyson restraining one of Dyson’s employees from joining a competitor for 12 months.

Dr Pellerey had a 12 month non-compete clause in his contract requiring him “not to compete with the company or any group company, carry on or be engaged, concerned or interested in any restricted business”. Restricted business was defined as any business which was similar to the business carried out by Dyson. 

The contract also stated that “if any person approaches you in connection with offering you employment which is or potentially may be in competition with the company then you will immediately inform to the company of that approach”. Pellerey was offered a job with a competitor but it was conditional upon him being able to work in the USA.  Pellerey had difficulties getting a visa and did not inform Dyson of this offer.  

About two months later, Pellerey was assigned to a highly confidential project to develop an electric car with Dyson. The following month the competitor offered Pellerey a job, this time in Europe and he handed in his notice. He was immediately put on garden leave and told that unless he gave an undertaking not to work for the competitor and not tell the competitor why he was doing so he would be sued. A few days later Pellerey told Dyson that the competitor had agreed to pay his legal costs to cover any claim Dyson might make against him.  

Dyson’s solicitors wrote a letter headed “Confidential and not for publication” to Pellerey stating that the competitor was in the same type of business as Dyson and he should not work for the competitor for 12 months, in accordance with his contractual terms. Although the letter was headed “Confidential and not for publication” Pellerey forwarded it to the competitor in the USA. It was held that the disclosure of that letter informed the recipient that Dyson was working on an electric car, the type of disclosure that Dyson had impressed on the employee not to make. Dyson issued proceedings seeking to restrain Pellerey from working for the competitor for 12 months. The judge found in Dyson’s favour and this was upheld by the Court of Appeal. The principles that emerge are:

• Express or implied negative covenants will in general be enforced by injunction without proof of damage by the plaintiff (employer).
• The availability of the remedy is not based on a regard for the plaintiff’s personal feelings but that it is unconscionable for the defendant (employee) to ignore his bargain.
• Whilst absence of damage is not a bar to an injunction, there may be exceptional cases where granting an injunction would cause the defendant so much hardship that it should not be granted.

 From this case, it seems that an injunction will ordinarily be granted unless there is a very good reason not to. This gives employers some confidence, should they wish to enforce restrictive covenants. In the light of this case employees, given the litigation risks (and adverse costs), will be more likely to agree undertakings to abide by their contractual restraints. If you are in a similar situation or have any other related employment questions, please speak to one of our employment law experts.