Restrictive Covenants

Thanks to Paul Smith of Broadway House Chambers for preparing this case summary

In the 'information age', may employees' relationships with clients still constitute an employer's proprietary interest requiring the protection of restrictive covenants?

Yes, held Queen's Bench Division of the High Court in East England Schools v Palmer.

This case centred on an employee of an education-sector recruitment consultancy, within whose contract of employment was a restrictive covenant. This covenant prohibited her from soliciting or dealing with the candidate teachers or client schools with whom she had dealt in her last 12 months, for a period of 6 months after the end of her employment. After her employment terminated, the (former) employer sought to enforce this covenant.

The High Court made findings of fact that this particular market is driven by the client candidates themselves rather than the consultancies, that there is little loyalty owed by the ultimate recruiters to the consultant, and that much of the relevant information about clients was publicly available in any event. Where, then, is the proprietary interest requiring protection?

The court decided that, notwithstanding these facts, the employer still required protection because it was central to the employee's role that she was to build relationships with client recruiters and candidates. A good, trusting relationship could make the difference between otherwise equal consultancies in a highly competitive marketplace. In addition, such employees would be privy to certain important information which was not publicly available, even if much other information was. These factors warranted protection.

As an aside, this decision at paragraphs 84 to 87 provides a useful run-down on the authorities relevant to severance, or the "blue pencilling" of elements within restrictive covenants which would otherwise render them unenforceable.