Interim solutions - Case Round-Up: April 2016

In this month's round-up, Mark Shulman, consultant solicitor with Keystone Law, looks at the principles that apply in different types of cases where an interim remedy is sought.

Mark Shulman, Consultant Solicitor at Keystone Law ** INTERIM RELIEF** Whistleblowing Section 128 of Employment Rights Act 1996 allows a Claimant to seek interim relief in very limited types of automatically unfair dismissal cases. This rarely sought (and even more rarely granted) remedy is available before the ET has made a final determination as to whether a dismissal is unfair. Interim relief results in an order to continue paying salary pending the full hearing and final decision, but is only available if the ET decides at the interim hearing that the Claimant is likely to win at the final hearing. One of the types of case where interim relief is available is when there is a whistleblowing claim.

In [Parsons v Airplus International Limited ]()UKEAT/0023/16/JOJ the Claimant claimed that her dismissal after starting employment was for "whistleblowing". She had asked whether minutes were kept by the company in relation to compliance decisions and said that it was an offence under the Companies Act 2006 not to keep minutes and she later sent an email with a link to various sections in that Act. Her case was that these communications amounted to protected disclosures. The employer maintained that her dismissal was because of a "cultural misfit" as she had behaved aggressively and inappropriately towards colleagues. The Claimant applied for interim relief.

The EJ must grant interim relief in circumstances where it "appears… likely" that, on final determination, the ET will find in favour of the Claimant. Although by agreement between the parties no oral evidence was heard, based on the papers, witness statements and submissions, the EJ rejected the application on the basis that, although the Claimant had a "good arguable case", she could not be said to have a "pretty good chance of success".

The Claimant appealed.

*Test for interim relief *Had the EJ applied the correct legal test? Yes, said the EAT. For many years it had been established that in applying this provision the ET had to ask itself whether the Claimant has established a "pretty good chance" of succeeding at the substantive hearing (Taplin v Shippam Ltd. This interpretation was justified because if the employee satisfies the test, the ET must make an order for interim relief and the employer is obliged to pay the employee pending the determination of the complaint  - there is no provision for re-payment in the event that the Claimant's claim ultimately fails on the merits.

Under section 128, the decision will inevitably be based to an extent on impression and therefore not susceptible to detailed reasoning and so far as possible, it is better for the EJ not to say anything which might pre-judge the final determination on the merits.

Although the EJ thought the Claimant had a "good arguable case", she could not say that she had a "pretty good chance of success" and the application therefore failed. Was this an error of law? No, said the EAT. It was not for the EJ to decide the case, but to assess the chances of the Claimant succeeding. That is exactly what the EJ did; she could not be criticised for saying that matters were not sufficiently clear cut at the interim relief application stage for her to have sufficient confidence in the eventual outcome at a final hearing to justify granting interim relief.

*Powers of the EAT *The EAT commented that given its decision, it was unnecessary to decide the "interesting and difficult" questions which were canvassed at the appeal hearing as to whether had the appeal succeeded, it would have been appropriate for the EAT to decide the interim relief application itself, or whether it would need to be remitted to the ET and, if so, at what stage it should be heard by the ET and on what evidence.

**INTERIM INJUNCTIONS Post termination restrictions** In two recent cases, consideration was given by the High Court to the grounds upon which an interim injunction may be granted to enforce the terms of post termination restrictions.

Firstly, In [M&E Global (Staffing) Solutions Ltd & Anor v Tudge & Ors ]()[2016] EWHC 597 (QB), the High Court granted an interim injunction after finding that an employee had breached the terms of a post termination restriction. Whilst this article looks specifically at restrictive covenants and interim injunctive relief, the case is also a useful general reminder of the principles that apply to interim injunctions as relating to misuse of confidential information and the granting of Springboard relief.

Test for injunctive relief The High Court confirmed that before obtaining any interim relief by way of an injunction, the applicant had to show (as per American Cyanamid):

(i) a serious issue to be tried; (ii) that damages would not be an adequate remedy; and (iii) that the balance of convenience is in favour of making the order.

Serious issue to be tried In considering this, the court would apply a three-stage process (as per Cox J in TFS Derivatives v Morgan by:-

  1. ascertaining what the relevant term means;
  2. identifying whether the employer has shown that it has a legitimate business  interest requiring protection; and
  3. considering whether the term goes no wider than is reasonably necessary for the protection of such interests.

The restrictions Mr Tudge's employment contract contained the following restrictions:

"In this agreement the following words and phrases shall have the following meanings:

"relevant services" shall mean the sale or supply of any other products which are the same as or similar to those services or products provided or sold by the Company during the last 12months of your employment.

"relevant person" shall mean any person, firm or company or other organisation and any prospective person, firm, company or other organisation with whom you dealt on behalf of the company or in respect of whom you have managerial responsibility during the last 12 months of your employment.

During the course of and as a consequence of your employment with the company you will have access to and acquire knowledge of confidential information. You will also have regular dealings with and establish relationships with relevant persons. In order to protect the Company's interest in both the confidential information and its client base, you agree that you will not, without the Company's written consent, directly or indirectly, and whether for yourself or on behalf of anyone else:

  1. For a period of 6 months commencing on the date on which your employment ends, be engaged in the provision of relevant services to, for or on behalf of any relevant person.
  2. For a period of 6 months commencing on the date on which your employment ends, solicit or attempt to solicit business from any relevant person in connection with the provision of relevant services"

Were the restrictions too broad? Mr Tudge argued that these restrictive covenants were void and unenforceable because they encompassed a much wider class of persons than customers or prospective customers of the employer and so the restriction was too broad. The definition of "relevant person" would, he contended, include anyone that he ever met, whether or not they were a customer or prospective customer. Further, the definition of "relevant services" only prohibited the supply of "any other products", and as Mr Tudge was not engaged in the sale of "products" it was not apt to cover his work in recruiting or placing personnel.

The Court disagreed. The restriction on providing services when read as a whole confined "relevant person" by reference to "relevant services", and so went no further than was reasonably necessary for the protection of the employer's legitimate business interests.

With regard to the supply of products, the definition of "relevant services" was easily understood as covering the provision of products or services in the form of personnel to fill particular roles or perform particular functions (Mr Tudge had been employed as Resource Manager with responsibility for HR sourcing and placing of personnel as required).

Therefore, the restrictive covenant complied with each of the three requirements set out by Cox J in TFS. There was cogent evidence that Mr Tudge had breached the terms of the restrictive covenant and that those breaches were assisted or encouraged by one or more of the other defendants and an interim injunction was granted.

Legitimate business interest Secondly,in the case of [Bartholomews Agri Food Ltd v Thornton ]()[2016] EWHC 648 (QB), the High Court (QB) also had to consider whether to grant interim relief to the applicant company (Bartholomews) and whether a clause in restrictive covenants was no wider than was reasonably necessary for the protection of its business interests.

Background Bartholomews was an agricultural merchant supplying a full range of products and services to the agricultural sector, including the provision of agronomic advice to individual farmers, landowners and their managers. Mr Thornton was an agronomist providing advice to Bartholomews' customers on issues such as crop planting and rotation, seed choice, and soil condition and crop nutrition advice in the form of fertiliser application. When he started with the company as a trainee agronomist Mr Thornton's Terms and Conditions included a provision that:

"Employees shall not, for a period of six months immediately following the termination of their employment be engaged on work, supplying goods or services of a similar nature which compete with the Company to the Company's customers, with a trade competitor within the Company's trading area, (which is West and East Sussex, Kent, Hampshire, Wiltshire and Dorset) or on their won account without prior approval from the Company. In this unlikely event, the employee's full benefits will be paid during this period."

The Court commented that "…these provisions have not been well drafted. There are no definitions and, on one reading, the covenant prevents the Respondent from being able to work in the six specified counties at all…".

*Was there a serious issue to be tried? *The issue for determination was whether Bartholomews could demonstrate that there was a serious question to be tried in terms of enforceability of the covenant. That involved "a minimalist approach which sets the threshold at a level which does little more than exclude claims which might be characterised as frivolous or vexatious" (per Patten J in BSW Ltd v Balltech Ltd [2006] EWHC 822(Ch)).

This meant that Bartholomews had to demonstrate that it had a legitimate business  interests requiring protection and that the covenant on its true construction was no wider than reasonably necessary for the protection of those interests. The Court had to construe the restrictive covenant to consider whether it was "so obviously unenforceable" in its wording that even at the interim relief stage, the issue could be resolved.

Business interests Bartholomews submitted that there were legitimate business interests requiring protection, i.e. its customer connection and its confidential information. The evidence was that Mr Thornton was very much a confidant of Bartholomew's customers, many of whom were small family owned businesses working in isolated conditions. The customers therefore placed considerable reliance on him and his role was very much that of a trusted advisor. Mr Thornton had some 52 active agronomy clients and in addition, at various events organised by Bartholomews, he would also engage with other customers of Bartholomews for whom he was not directly responsible.  At these events he would have the opportunity to talk to those customers and learn more about their business interests and concerns.

Therefore, it was argued that Mr Thornton had developed relationships with Bartholomews' customers and that customer connection was a legitimate business interest to be protected.

Further, it was contended that on a true construction of the non-dealing covenant, it went no further than was necessary to protect the legitimate business interests since:

* it was limited in time (6 months), and was no longer than reasonably necessary to provide Bartholomews with the opportunity for it to introduce one of its other agronomists to customers who had been serviced by Mr Thornton and for that agronomist to develop a relationship with those customers; * it was limited to the supply of goods or services of a similar nature to those supplied by the Respondent in competition with Bartholomews; * it was limited to dealings with Bartholomews' existing customers - a necessary provision to protect confidentiality and customer connection because of Mr Thornton's possession of confidential information relating to Bartholomews' business.

Considerable reliance was placed on the unusual aspect of the covenant which required that Bartholomews would continue to pay Mr Thornton his full remuneration for the duration of the covenant even if he was in other employment and was being paid by his new employer (provided of course that he did not breach the restriction). This, it was said by the company, pointed heavily in favour of upholding the clause since it shifted the benefit and burden of the clause away from the employer and in favour of the employee and allowed Mr Thornton to receive a windfall benefit while still furthering his career.

Further, the company maintained that the covenant was limited to a narrow category of cases and only to the counties of West and East Sussex, Kent, Hampshire, Dorset and Wiltshire, notwithstanding that it would have been justified to have sought a wider restriction against competing within those areas altogether. In particular it did not prevent Mr Thornton from providing agronomic advice to any person who was not an existing customer or from providing agronomic advice to customers in any other part of the United Kingdom.

Was the covenant enforceable? No, said the Court, disagreeing with Bartholomews - the covenant was in restraint of trade and unenforceable.

Firstly, it had been imposed on Mr Thornton as long ago as 1997, at a time when the Respondent was a trainee agronomist with no experience and no customer contacts and its terms were manifestly inappropriate for such a junior employee.

Secondly, an employment non-competition covenant that was unenforceable at the time it was agreed given the employee's status and role at the time remained unenforceable regardless of the employee's promotion to a role where the covenant would have been regarded as reasonable (as per Underhill J in Pat Systems v Neilly .

Thirdly, the covenant was unenforceable because it was far wider than reasonably necessary for the protection of Bartholomews' business interests. In terms of customer connection, it applied to all customers of Bartholomews and of its associated companies, regardless of whether Mr Thornton had knowledge of those customers and regardless of whether he ever carried out any work for those customers. Mr Thornton was responsible for just over 1% of Bartholomews' turnover. It followed that the remaining 98% or so of turnover was generated by customers with whom Mr Thornton did not directly deal. It would therefore be wrong to restrict Mr Thornton from having dealings with that other 98% of Bartholemews' customers.

The Court considered that in these circumstances, the covenant was therefore not reasonably necessary for the protection of Bartholomews' customer connection. It was too wide-ranging. Had it provided that Mr Thornton could not for 6 months deal with or solicit customers with whom he had dealt for a period of time before the termination of his employment, that would have been a sufficient restriction. Further, there was a lack of any correspondence between the restricted areas and the customers with whom Mr Thornton had dealings. The majority of Mr Thornton's clients were based in West Sussex and there were no such clients in Wiltshire, Dorset or Kent (all of which areas were prohibited areas under the restriction).

With regard to the unusual provision providing for Mr Thornton, to continue to be paid in full during the period of the covenant, it was contrary to public policy to permit an employer in effect to purchase a restraint.

The application by Bartholomews for interim injunctive relief to enforce the covenant was therefore refused. _________________________

Mark Shulman is a Consultant Solicitor with Keystone Law and an accredited workplace and employment mediator. His blog on new employment legislation can be found here.

Published: 11/04/2016 12:50

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