Limited non-solicitation injunction granted but non-compete injunction dismissed: matters to be taken into account when considering such applications

Louise Boswell

In Freshasia Foods Limited v Jing Lu [2018] EWHC 3644, the High Court considered the relevant factors to be taken into account when deciding whether to grant an injunction sought by the claimant company against a former employee, on the basis of non-solicitation and non-compete clauses in the former employee’s employment contract.

The claimant argued that it only needed to show that there is a serious issue to be tried as to the enforceability and breach of the restrictive covenants contained within the relevant contract clauses (in accordance with the approach in American Cyanamid [1975] AC 39). The defendant successfully argued that there were other factors making it appropriate also to take into account the strength of the parties’ respective cases on the merits.

Having considered the latest case law on the subject (including the recent case of Ideal Standard International SA & Anor v Herbert [2018] EWHC 3326), the Judge decided that:

1. The court should always take account of the practical realities in cases of this kind. If a preliminary injunction is likely to be final in effect, the court should be particularly convinced that the course it adopts at the interim stage is likely to be justified. Such a case may be one in which the defendant would, as a result of the injunction, lose his or her new job altogether and would, as a result, lose a home or residence status.

2. There is no fixed way in which the merits of the parties’ respective cases must be taken into account. Where an injunction would have a particularly severe impact, it may only be appropriate to grant it if reasonably satisfied the claim will succeed. In other situations, the merits may be taken into account as a factor in attempting to take the course least likely to lead to injustice.

3. It is necessary to take into account the nature of the injunction sought. An injunction preventing employment altogether may require more intensive justification than an injunction merely restraining dealing with certain specific individuals with whom the ex-employee has previously dealt, but which leaves the employee free to work in the industry more generally.

The Judge also acknowledged that in interpreting post termination restrictions, it was necessary to bear the following wider considerations in mind:

• Enforcement of suitably drafted covenants is in the public interest, protecting the legitimate rights of the employer.
• However, overly broad covenants can put existing employers into an unfair position, giving them undue power to intimidate employees with litigation into not joining a competitor.
• The potential for causing disadvantage may be greater where other important aspects of life, including residence status and mortgage payments, are dependent upon employment.

Applying the above reasoning to the facts of the present case, the Judge decided that it was at least well arguable that parts of the non-solicitation clause were appropriate to protect the claimant’s legitimate interests. It was also arguable that those parts were severable from other parts of the clause that were likely invalid. As the claimant’s uncompensatable loss from refusal of the injunction was likely to be greater than that of the defendant and his future employer as a result of it being granted, he decided the balance of convenience favoured the granting of a limited interim injunction in the company’s favour pending trial, on the terms set out below, namely that its former employee was bound not to:

solicit the custom of, or sell or deliver to any private individual, firm, company or other person who at 28 September 2018 was (a) a customer of the Claimant to whom the Defendant had personally sold and/or delivered the Claimant’s products on behalf of the Claimant, or (b) whom the Defendant had introduced to the Claimant or approached on behalf of the Claimant.

However, the Judge decided that the non-compete clause was unlikely to be held to be enforceable, on the basis that it failed the test of being no wider than reasonably necessary to protect confidential information or trade connections. Trying to stop the defendant from working for his new employer at all pending trial was clearly unjustifiable. The Judge noted that given the specialist nature of the defendant’s skills, he would be in difficulties in getting comparable employment that would enable him to continue with his existing visa to reside and work in the UK in his own right, and which would also cause difficulties as regards his mortgage payments. In the event an injunction were to be granted, the defendant was likely to suffer unquantifiable loss which outweighed any likely loss which may be suffered by the claimant as a result of refusing it. Accordingly, no injunction was granted in respect of the non-compete clause.

Post By Louise Boswell (2 Posts)

As a commercial disputes lawyer, my practice is focussed on commercial litigation and arbitration. I also advise on alternative dispute resolution and mediation, with a focus on assisting clients to find the most commercial and practical solution for their business. For more information on my experience, please take a look at my LinkedIn profile.

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