Fact pattern - restrictive covenants

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Restrictive covenants must be in the public interest to be enforceable.

Grieg v Insole - Held open to an employee to bring an action for declaration that contract was a restraint of trade, inasmuch as it threatened the liberty of action in seeking employment, which was a matter of public interest.

Herbert Morris v Saxelby - in public interest man should be free to exercise skill & experience to best advantage for the benefit of himself and of others who desire to employ him.

Must protect legitimate interest of the employer

Stenhouse Australia v Philips - Employee entitled to use any personal skill or experience even if acquired in the course of employment. Company there had clause preventing employee from working as insurance broker for client of company for 3 years and that employee would not solicit insurance business for 5 years from co's clients.

Non-compete unenforceable as restraint of trade and mere competition is not a legitimate interest.

BUT such a provision can be necessary for the purposes of protecting Trade secrets or customer base of employer. These are both seen as legitimate business interests.

Competition provisions not usually upheld by the courts

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Restrictive covenant must be reasonable in scope to protect those legitimate business interests

Geographical area and length of time must be reasonable.

Greer v Sketchley - Manager of dry cleaning co shall not within 12 months engage in any part of the UK in any similar business involving such trade secrets as carried on by D. Unreasonable due to whole of Uk excluded. Reasoning: Sketchleys only operated across South of England - not across whole of UK so the limit imposed was unreasonable restraint of trade.

Cf. Littlewoods v Harris - Court should construe the contract in light of the object and intent of the contract as a whole. Director of business wanted to leave to work for rivals. Restrictive covenant prevented him from doing so for 1yr. Upheld as reasonable because director in fashion industry had knowledge of designs for future seasons. Shelf life of designs deemed ok for 1 year.

Application to Fact pattern

Public interest - clear from Herbert Morris v Saxelby that an individual wishing to exercise their own skill and experience is in the public interest.

Legitimate business interest - here, preventing Roberta from acting in competition with them is not a legitimate business interest. Doesnt appear they have any trade secrets. But, may wish to prevent Roberta from taking employees with her to her new company.

Reasonable in Scope - given care home only operates in berkshire, unlikely to be reasonable in scope due to the whole of England and Wales being excluded. Facts here fit similarly to those in Greer v Sketchley so likely this would be deemed unreasonable. Furthermore, 12 months in relation to working for another rival may be unnecessary restraint of trade as was the case in Prophet v Huggett.

therefore, clause likely to be seen as unjustifiable restraint of trade and will be void.

Can use blue pencil rule? This is a technique used by the courts where can remove part of the clause in order to make it valid. E.g. cannot work anywhere in UK/EU for 6 months. If EU seen as too wide, can be removed and the clause will be valid. What the courts will not do is change a term for something more suitable. Here, could cross out work for rival for 6 months and leave clause with setting up her own company for 6 months. This could still be valid as it allows her to work elsewhere whilst she plans to set up a company. However, Roberta wishes to set up her own co so the England and Wales restriction may still be too wide here.

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How may clause be improved?

Courts will not re-write a clause of the contract (Prophet v Huggett) .

However, here, improvement may be to change England & Wales to Berkshire. Given that care homes are intended to provide a local service, would not be unreasonable to allow Roberta to set up in a different part of the country. The clause should then read instead as "the employee will not work for another employer in Berkshire or set up company in Berkshire for 6 months."

The time limit should also be 6 months for both setting up her own company, and working elsewhere. 6 months have usually been upheld as reasonable by the courts whereas 12 months may prove to be an unnecessary restraint of trade (Prophet v Huggett). Given the nature of care, likely this would not be too restrictive as less likely that Roberta could take clients/employees.

Any other legal action to protect their interests/competition?

There may be implied duty not to reveal confidential information. Under Faccenda Chicken v Fowler, an implied duty of confidentiality will protect an employer against trade secrets being made public knowledge even after the employment has ended. However, here, it is unlikely the care home will have any trade secrets.

With regards to protecting ordinary confidential information, the implied duty of confidentiality protects this kind of information only during employment but not once employment terminated. Here, if wanted to protect information regarding care home practices / patient information, they would need an express confidentiality clause to protect use after Nadia has left, or a valid restrictive covenant.

Ordinary skill and knowledge is not capable of any protection under duty not to reveal confidential information so they may wish to consider placing Roberta on garden leave for the remainder of her notice period to prolong the period of her employment. If such a duty is implied, Nadia & Javid may be able to seek an injunction in respect of the implied term or restrictive covenant to prevent Roberta sharing confidential info. If confidential info is shared, Roberta may be in breach of contract.

If Roberta was setting up a company in competition whilst employed at the care home, or soliciting to compete with them, may be in breach of an implied duty of good faith. Under Hivac v Park Royal - highly skilled employees assembled valves for hearing aids. on day off, worked in direct competition with the employer. CA held employees in breach of duty of GF since their actions had capacity to inflict great harm on the commercial interests of their employer. However, this duty only applies when they are still engaged by the employer. Not after terminated as they are free to engage in competing activities.

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