Covenants in restraint of trade; legitimate interests

International Consulting Services (UK) Ltd v Hart [2000] IRLR 227, QBD

The short but interesting point in this first instance decision is that a non-solicitation clause relating to any company, firm or person who at any time in the 12 months before termination had been ‘negotiating’ with the employer was held to be valid. The employee had argued that such a clause was too vague to be enforceable and that the ex-employer had no sufficient interest in prospective customers who were only at negotiation stage, but the judge rejected that. He held that there was a protectable interest here, that, although not free from difficulty, the terms ‘negotiating’ could be defined, and that a restraint period of 12 months after termination was not unreasonably long. Of course, cases like this are heavily factual, and one of the material facts here was that in the business in question negotiations were often lengthy and complex before agreements were reached, and so it could be argued that connections with potential clients formed part of the goodwill of the firm, and a protectable interest.

SBJ Stephenson Ltd v Mandy [2000] IRLR 233, QBD

This is also a first instance decision on legitimate and protectable interests, concerning the difficult question of information known to the departing employee, but not learned and/or carried away deliberately. The employee in the case, defending a claim for an injunction based on a restraint clause, argued that a clause restricting disclosure of any information in relation to the company’s affairs, before or after termination, was too wide, because it could include information in his head such as names of clients.

Interestingly, Bell J held that the proper distinction to make is not a mechanistic one between information in the employee’s head and information deliberately learned in order to be used later. He said that the leading modern case of Faccenda Chicken is not authority for such a distinction. Instead, he went back to the old case of Herbert Morris Ltd v Saxelby [1916] 1 AC 688, HL and Lord Shaw’s distinction between ‘objective knowledge’ which is the employer’s property (even when residing in the employee’s own memory), and ‘subjective knowledge’ such as the employee’s own abilities, skill, aptitudes, etc, which remain his or hers. Here, the client list which the employers were seeking to protect constituted objective knowledge which was a legitimate interest, and so the clause in question was not unreasonably wide for seeking to cover it.

“Harvey on Employment” bulletin 261, 2000