07 March 2012 #Employment
The Court of Appeal has upheld the High Court’s decision to refuse a “barring order”, which would have preventing a former employee from being involved in the commercial relationship between her new employer and her ex-employer.
The Claimant was employed by CLS to manage their logistics centre. Although her contract of employment did not contain any post termination restrictive covenants preventing her from working for CLS’s competitors or clients, she had signed a confidentiality agreement which prevented her from divulging confidential information either during or post employment.
The Claimant subsequently resigned and joined Quinton Hazell Automotive (QHA), one of CLS’s existing clients with whom a dispute had arisen.
CLS alleged that QHA had employed the Claimant to exploit the confidential information that she held. It argued this placed her in breach of a fiduciary duty, on the ground that there was an extremely strong likelihood that she would use or disclose the confidential information.
Although it was accepted that there had been no actual misuse of the confidential information, CLS sought wide ranging undertakings from the Claimant to protect its confidential information. Whilst the Claimant undertook not to breach the confidentiality agreement and not to be involved in certain activities on behalf of QHA, she did not give the full undertakings requested.
Consequently, CLS issued proceedings and made an interim application for:
- A “barring order” preventing the Claimant from being involved in the commercial relationship between CLS and QHA;
- An injunction restraining the use or disclosure of confidential information;
- Delivery of all documents in the Claimant’s possession belonging to CLS or containing confidential information belonging to CLS; and
- An affidavit verifying compliance with the delivery up order.
The High Court refused the interim relief sought and, moreover, struck out the proceedings on the basis that there were no reasonable grounds for bringing them. CLS therefore appealed.
The Court of Appeal dismissed the appeal. It held that a “barring order” was not available, in absence of a reasonable post termination restrictive covenant, to prevent a former employee from joining one of the former employer’s rivals as a means of preventing against the future misuse of confidential information, save in the most exceptional circumstances. The Court of Appeal distinguished the ordinary relationship between an employer and an employee from fiduciary relationships, (such as those between a trustee and beneficiary, or a solicitor and client), where barring orders have formerly been granted.
The non-disclosure injunction was denied on the ground that CLS had failed to establish that the Claimant had breached or intended to breach the terms of the confidentiality agreement, or that there was a real risk of her breaching the terms. Furthermore, the injunction sought was deemed to be “hopelessly wide and vague”.
If an employer wishes to obtain extra protection for confidential information post-termination, it should consider incorporating restrictive covenants in its contracts of employment. Clarkslegal can provide further guidance on restrictive covenants and their enforceability.