ABG Employment Newsletter – October 2013

Non-solicitation clause in employment contract valid despite wide scope

A non-solicitation covenant may be included in a contract of employment to prevent a departing employee from using the goodwill developed during employment to entice away the employer’s customers and clients. It will be void unless the employer can show that:

  • It has a legitimate proprietary interest that it is appropriate to protect.
  • The protection sought is no more than is reasonable having regard to the interests of the parties and the public interest.

Generally, non-solicitation covenants should be limited to those with whom the employee had contact during a specified period immediately before termination to be enforceable This is because a covenant which applies to all the customers and clients with whom the employee dealt during employment may be too wide to be enforceable.

A non-solicitation restriction does not always need to be limited to customers with whom the individual had direct contact. It can include those of whom the employee was aware, if it is intended to protect either the general customer base (where the identity of the employer’s customers is not public knowledge but is known to the individual) or the general goodwill of the business (where that attaches specifically to the individual). If this is the aim, the restriction should be limited to one of the following:

  • The period that the identity of customers will remain secret.
  • The period that it will take for the individual’s knowledge to go out of date.
  • The time until the goodwill ceases to attach to the individual and reverts to the employer.

In a recent case, the Court of Appeal held that a six month non-solicitation restrictive covenant preventing a director employee from approaching anyone who was a customer at any point during his employment was reasonable.

The employee (A) joined the company in 2008 and became a director in 2010. At that point he signed a new contract containing a restrictive covenant to the effect that, for six months following the termination of his employment for any reason, he would not solicit, directly or indirectly, any individual or organisation that was a customer of the company during his period of employment.

The Company began a redundancy consultation with the employee in 2012 he resigned and seemingly induced another employee (B) to do the same. B then incorporated a new company; however, A was directing the new company from behind the scenes. A also induced five customers to move their custom to the new company. A was found to have made numerous texts and calls to the client immediately after his resignation.

The court held that the restriction was reasonable and that A had breached the non-solicitation clause, as well as his fiduciary duty to the company. It ordered that damages of at least £50,000 be awarded.

The employee appealed on the grounds that the restriction was unreasonable and therefore invalid as it applied to all of customers he dealt with during his employment. He argued that the restriction should be limited to customers he had dealt with during a certain period, i.e. the last 12 months of his employment.

The Court of Appeal held that the restriction was reasonable, despite its breadth, as the restriction only applied for six months after termination.

It is well established that decisions on the validity of restrictive covenants are highly sensitive to their facts. In this particular case the court placed great emphasis on a post-termination duration of six months as being so short as to almost render it fair automatically. The fact that this was truly a non-solicitation restriction rather than a non-competition restriction undoubtedly weighed in its favour.

Data Protection Policies need to include provisions for employees’ personal devices

The Information Commissioner’s Office (ICO) has warned organisations to include provisions in data protection policies which address employee use of personal devices, such as smartphones, tablets and laptops, for work purposes.

The Royal Veterinary College (RVS) recently gave an undertaking to the Information Commissioner, following a data breach involving the theft of an employee’s personal camera memory card in December 2012. The memory card included stored photographs of six job applicants’ passports. The RVS had no guidance in place on the storage of personal information for work purposes on personal devices.

The seventh data protection principle in the Data Protection Act 1998 (DPA) obliges data controllers to take appropriate technical and organisational measures against unauthorised processing and accidental loss of personal data. RVS have undertaken to provide mandatory training to staff, recording and monitoring of such training, encryption of portable devices and physical and other appropriate security measures to ensure compliance with the seventh principle.

The ICO highlighted the increasing use of personal devices for work purposes. It indicated that organisations should update data protection policies and provide staff with guidance and training to account for this trend. The ICO issued Bring Your Own Device (BYOD) guidance in March 2013.

Discrimination justified by social policy

The Age Regulations, provided that A directly discriminated against B if A treated B less favourably than it treated or would have treated a comparator ‘on grounds of B’s age’, and the treatment was not objectively justified. Treatment will only be justified if the employer can demonstrate that it is a proportionate means of achieving a legitimate aim. The Equality Act 2010, which repealed the Age Regulations on 1 October 2010, contains substantially the same test.

An employee claiming direct age discrimination will need to show that they have been treated less favourably than a real or hypothetical comparator whose circumstances are not materially different to theirs. If the circumstances are materially different, a comparator cannot be established and the claimant will not be able to make out less favourable treatment.

In a recent case, the Court of Appeal held that an enhanced redundancy scheme, which discriminated against younger workers, was objectively justified by public policy.

The employee began working for the Department of Work and Pensions (DWP) in October 1999. In April 2007 her position was found to be redundant and she took advantage of the voluntary redundancy scheme offered by the DWP. Her employment terminated in September 2007.

Under the voluntary redundancy scheme, as a 26 year-old employee with 8 years’ service, the employee received a redundancy payment of £10,849.04. However, under the scheme rules, if she had been over the age of 35 with the same length of service, she would have been entitled to an additional payment of £17,690.

The employee brought a claim for direct age discrimination.

The Employment Tribunal dismissed the claim on the ground that, since there was a material difference between the employee’s age group (under 30), and that of the older age group (35 and over), the employee could not establish a comparator for her less favourtable treatment claim. The material difference was that the younger age group had less financial and family obligations and so had greater flexibility when reacting to the loss of their employment. Even if there had been less favourable treatment of the younger age group, the employment tribunal held that it was objectively justified. The employee appealed, unsuccessfully, to the EAT.

The EAT held that the circumstances of the comparator group (employees aged 35 and above whose employment had been terminated) were materially different to the circumstances of the group complaining of discrimination (those below the age of 30 whose employment had been terminated). The EAT went on to find that, in any event, it would have found the scheme to be objectively justified.

The employee then appealed to the Court of Appeal on the following grounds:

  • The employment tribunal/EAT erred in its approach to the comparator exercise by factoring in considerations that were either directly or indirectly related to her age.
  • The employment tribunal/EAT ignored material factors when considering the justification issue, took irrelevant factors into account and did not approach the question of justification with sufficient rigour.

The Court of Appeal allowed the first ground of appeal, finding that the circumstances of the comparator group were not materially different to those of the employee and that she had suffered less favourable treatment. The EAT should not have taken into account the greater financial commitments and lack of flexibility of the older age group as these differences were linked to age and should therefore have been ignored. Once the comparison was allowed, it was obvious that the employee had suffered less favorable treatment. She had received substantially less money than someone whose circumstances (apart from age) were identical.

The Court of Appeal rejected the second ground of appeal, agreeing with the EAT that the less favourable treatment had been objectively justified by a strong social policy objective of providing a financial cushion that reflected the extra problems older workers experienced after losing their jobs.

This seems to be a sensible decision by the Court of Appeal. It would be very difficult for a claimant to establish less favourable treatment if the circumstances connected to their protected characteristic could be factored in to establish differences to their chosen comparator.

 

The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Christopher Gigg 
cgigg@abg-law.com 
+44 (0)115 934 3310

Kathryn Meir
kmeir@abg-law.com
+44 (0)115 934 3308