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Restraint of trade; garden leave clauses

A[615]
Symbian Ltd v Christensen [2001] IRLR77, CA

The employee was an executive vice-president of a company engaged in research into a new generation of mobile phones. He was subject in his contract to a clause precluding him from engaging in any other employment during the term of the agreement, a six-month garden leave clause, and a restraint of trade clause (no working in competing business for six months after termination). He obtained new employment with a competitor company and purported to give the existing employer one week’s notice, arguing that all the relevant restraints were either inapplicable (one argument being that although the new employer was a competitor, his particular new post was itself not competitive) or unenforceable.

When the old employer brought proceedings for an injunction, this was granted by Scott V-C, and then upheld by the Court of Appeal. Their judgment is of interest for three reasons:

(i) The Vice-Chancellor had been right to exercise the power to enforce the clause preventing other engagements, as he found that the company had reasonable cause to fear competitive disadvantage, and so to enforce the clause would serve a genuine and legitimate interest and provide legitimate protection (in spite of certain undertakings given by the employee and the new employer). It is notable that he would not simply rely on the six-month restraint clause because it was too wide (stopping a non-competitive engagement, albeit in a competitor company).

(ii) Further, it was correct to follow William Hill Organisation Ltd v Tucker [1998] IRLR 313, CA to the effect that even a clear garden leave clause (such as the one here) will only be enforced to the extent that is reasonable, so that such a clause is in fact subject to similar rules as a restraint of trade clause. Here, the Vice-Chancellor had modified the contractual provision to apply only to working for this particular competitor during the garden leave period.

(iii) The Court of Appeal declined to accept one, possible heretical, part of the Vice-Chancellor’s judgment, where he declined to follow Provident Financial Group v Hayward [1989] IRLR 84, CA where it was held that the garden leave clause could be enforced on the basis of the implied duty of fidelity. In his opinion, the effect of applying a garden leave clause was to end the employment relationship (including terms such as fidelity), while keeping some form of contractual ‘shell’ in place. With respect, there is no authority for this and it could have unfortunate results. Morritt LJ contented himself with saying that counsel for the employee ‘confessed to some difficulty in seeking to justify that part of the Vice-Chancellors judgment in his favour’ and that, as the point had not been argued before them, the Court of Appeal expressed no opinion.

“Harvey on Industrial Relations” March 2001.