Can confidentiality and post termination restrictions be enforced through the courts?

Some employers are sceptical about inserting confidentiality, non-solicitation and post termination restrictions into an employment contract because they may be seen as amounting to a restriction on trade. While this may be true carefully worded clauses which are reasonable can protect your ‘trade secrets’ and ‘highly confidential data’ from breach by senior employees or employees placed in a position of trust.

The recent case of QBE Management Services (UK) Ltd v Dymoke & Others [2012] EWHC 80 (QB) highlights this point. In this case three senior managers (‘the Defendants’) resigned to join a competing business, shortly after, 8 junior employees resigned to join them. All the employment contracts contained confidentiality, non-solicitation and post termination restrictions. QBE in the first instance obtained interim injunction enforcing garden leave obligations and post termination restrictive covenants against the Defendants together with orders of early disclosure.

The disclosure revealed that the Defendants had:
- been instrumental in setting the competing business up;
- solicited QBE’s clients & employees prior to their resignation; 
- abused confidential information and
- concealed their activities from their employers.

Where a person has obtained a ‘head start’ as a result of unlawful acts, the court has power to grant an injunction which restrains the wrongdoer, so to deprive them of the fruits of their unlawful act. This is known as ‘springboard relief’. QBE successfully obtained the relief of a ‘springboard injunction’ restraining the Defendant’s from launching their company pending a speedy trial.

The disclosure in this case was key to this case as it revealed that the Defendants were aware that their venture could only work if they had qualified and suitable employees and further this would be crucial to gaining credibility and the right financial backers. They targeted key staff and attempted to disguise this through the use of head hunters during the recruitment process.

The Defendants also used confidential information to contact the brokers to entice them to provide the new company with future work.

The judge regarded this as an overwhelming case and one where the springboard relief was clearly available, and available for all breaches not just for the breach of confidence. The judge concluded that the breaches had allowed the Defendants to get up and running before the crucial renewal window for some 70% of the marine insurance business in February 2012. Therefore alongside damages he ordered a further springboard injunction to prevent the Defendants launching their company until April 2012 – being 12 months after the date of the resignation of the Defendants.
This is a useful judgement for employers as it tightens the standards of good faith and loyalty expected of an employee.

What should you do as an employer?

Ensure all employees in key positions or those that are given access to sensitive business information and are involved in strategic business positions have reasonable confidentiality, non-solicitation and post restrictive termination clauses in their employment contracts to protect your trade secrets and highly confidential information.

If you have any questions in respect to any of the above or in breach of contract claims in general please contact me on 0113 350 4030 or samira.ali@scelegal.co.uk for a no obligations 30 minute consultation.