The law makes clear that non-compete restraint clauses can be enforced if they are reasonable and protect legitimate business interests. In Planon Ltd v Gilligan, the Court of Appeal held that the delay in the company’s application for an interim injunction could not be reconciled with their argument that their legitimate business interests would be threatened if Mr Gilligan went to work for one of their 'key competitors'.
Basic facts
Mr Gilligan had worked as an account manager for Planon Ltd since 2015, which involved direct selling to customers in a very niche market. His contract contained a number of post-termination restrictions (PTRs), one of which prohibited him from working for a competitor for 12 months after his employment came to an end.
After he gave a month's notice on 23 July 2021, Planon Ltd wrote to him on 2 August asking him to confirm that he was not going to work for one of their competitors in a role which meant he was competing with them. Although he said that he was not going to work for a competitor called ServiceNow or any other competitor in a sales role, this did not reassure Planon Ltd and Mr Gilligan was put on garden leave on 6 August. After his contract came to an end on 23 August, he started work for ServiceNow on 1 September, which Planon Ltd learned about the following day.
Describing ServiceNow as one of their key competitors, Planon Ltd wrote a 'letter before action' to Mr Gilligan on 20 September, and again on 14 October, asking him to give undertakings that he would be bound by the PTRs. As the company was not satisfied with his response, it applied for an interim injunction on 21 October, asking for the PTR to be enforced, thereby preventing him from working for a competitor.
High Court decision
The High Court judge refused to grant the injunction on the basis that, if it did, Mr Gilligan would effectively be prohibited from working for 12 months. It would, therefore, be in restraint of trade.
Planon Ltd appealed, arguing that damages would provide Mr Gilligan with an adequate remedy if it turned out at full trial that the company could not enforce the non-competition clause.
Decision of Court of Appeal
The Court of Appeal held that the High Court judge was wrong to focus mainly on the argument that if the non-compete covenant was enforced, Mr Gilligan would not be able to work for the period of the restraint clause. As there was no case law to support that approach, that decision could not stand.
However, the court noted that there was a gap of almost two months from the date that Planon Ltd learned about Mr Gilligan’s new job and its application for an interim injunction. It reasoned that if his new job posed as severe a threat to the company’s trade secrets or customer connection as it had argued, the damage would surely have been done in the first few days, “and certainly well before the lapse of two months”.
Reinforcing that approach, the court also noted that, by the time of the appeal court hearing, Mr Gilligan had been in post for over seven months, meaning the non-compete covenant had only a few months left to run. Not only would it be contrary to the balance of convenience to enforce the non-compete covenant now, it was likely that much, if not all, of the damage which Mr Gilligan’s new employment might have caused to Planon Ltd’s legitimate interests had already been caused.
Nor did the court think that damages would not be an adequate remedy, given that “the likely effect of such an injunction would be to deprive [Mr Gilligan] of his income until and unless he can find a new job”.
It therefore dismissed the appeal.
Comment
It is public policy that people should be able to earn a living at their chosen profession. Any attempt to limit that to suit a former employer will be closely scrutinised. Significant weight was given to the fact that Planon Ltd’s PTR clause would prevent Mr Gilligan from earning his living for a whole year. The judge noted that, except in cases of very wealthy defendants, or where a claimant employer is offering paid garden leave for the full year, this argument was unrealistic. This, together with the delay, killed the injunction application stone dead.
We see clauses like these in contracts of employment and settlement agreements, but this case is a useful reminder that they should not just be taken at face value since many will not be upheld by a court. It is worth remembering too that defeating an injunction is winning the battle, not the war - a final hearing might yet be needed.