Cases of Interest 1 ~ Validity of Restrictive Covenants
A recent case has shown that the restrictive covenants placed into a contract of employment limiting post-termination employment activities by an individual were legitimate, despite most of the relevant information being widely available through various internet and social media sites.
The case in question concerns a Recruitment Agency working in Essex who specialised in matching teachers to schools within Essex and a former employee Ms Palmer – East England Schools CIC (t/a 4MySchools) v Palmer. Ms Palmer had worked for EES and an integral part of her role was to build relationships with schools and teachers, who would then sign up as or remain as clients of EES. Within her contract of employment was a restrictive covenant which prevented her from soliciting or dealing with any client (school or teacher) with whom she had dealt with in her last 12-months of employment for a period of 6-months post-termination.
Ms Palmer subsequently left EES and got a job with another teacher recruitment agency (SG) who were looking to grow their presence in Essex and when EES learned that Ms Palmer was in fact breaching the terms of her post-termination restrictions, they wrote to her and her new employer to remind them of the contractual obligations in place. Ms Palmer signed an undertaking to comply with the terms of her contract, but then continued to breach them and consequently, EES commenced High Court proceedings against both Ms Palmer and her new Agency, seeking damages and an injunction.
What was critical to establish in this case was whether Ms Palmer’s contract was legally enforceable i.e. if EES had a legitimate proprietary interest to protect and if the restrictive covenant that was in place, was no wider than reasonably necessary to protect that interest.
The High Court found that the recruitment market was driven by the clients themselves rather than the Consultancies, with much of the relevant information about both schools and teachers being widely and publicly available and that there was little loyalty owed by the ultimate recruiter to the Consultant and/or Agency who had undertaken the work on their behalf. The Court rejected Ms Palmer’s argument that because of the use of the internet and social media, all relevant information was in the public domain and could therefore not be considered to be confidential to any one particular Agency. Instead, it held that EES required protection because Ms Palmer’s role within EES had been to build and establish relationships with clients and that a ‘good, trusting relationship’ could make the difference between otherwise equal Agencies in a highly competitive market. Likewise, that the relationship built between an Agency and/or their Consultant acting on behalf of the Agency and a candidate teacher could also be a deciding factor in whether a teacher chose to sign/remain with an Agency or register with someone else.
It was the opinion of the Court that although generic information such as names, contact details, qualifications etc. may have been publicly available, there was other valuable information about schools and teachers that Ms Palmer would have acquired in the course of her work with EES, which would not have been widely known including information about their likes/dislikes, personalities and special requirements, but which could be used as a basis for a trusting relationship.
Taking all of this into consideration, the Court held that it was reasonable for EES to assume when it contracted with Ms Palmer that should she leave their employment, she would be in a position to use the information acquired to influence an appreciable number of schools away from EES to her new employer and that the length of the restriction (6-months) was reasonable as these relationships took time to build. Both Ms Palmer and her new Agency were held to be liable to pay damages to EES; the latter being liable because it was held that they had sufficient knowledge of the restrictions binding Ms Palmer to make the Agency liable for procuring the breaches that she had committed.
In reaching this verdict, the Court stressed that where ‘relationships with customers are fragile and easily lost because of a lack of loyalty, as was the case here, the need to protect those relationships by means of restrictive covenants will be even greater.’