HEADLINE SUMMARY

The case of Planon Ltd v Gilligan [2022] EWCA Civ 642 highlights the importance of acting swiftly when seeking to enforce restrictive covenants. In this case, the Court of Appeal refused to grant an injunction to enforce a 12-month non-compete clause that had only four months left to run at the time of the appeal hearing.

BACKGROUND FACTS

In February 2015, Mr Gilligan commenced employment with Planon Ltd (Planon), a company which specialises in the development and sale of facilities management software. Mr Gilligan's employment contract contained a post-termination restriction that prevented him from working for any competitors of Planon for a period of 12 months.

Mr Gilligan handed in his resignation notice in July 2021 and his employment with Planon came to an end on 23 August 2021. On 2 September 2021, Mr Gilligan began working for a competitor, ServiceNow, as a Senior Solutions Sales Manager.

On 20 September 2021, Planon's solicitors sent a letter of claim to Mr Gilligan seeking undertakings. Following the exchange of correspondence, Planon was not satisfied with the undertakings offered by Mr Gilligan and on 21 October 2021 Planon issued a Claim Form followed by an application for interim injunctive relief on 22 October 2021. The application was heard on 5 November 2021 and the Judge refused to grant an injunction. 

DECISION

Planon appealed and the Court of Appeal held that, although the Judge had erred in the way in which he had approached the enforceability of the restriction, the Judge's decision not to grant the interim injunction should be upheld.

This case is interesting as the Court of Appeal has upheld the first instance Judge's decision, despite disagreeing with the way in which the Judge reached that decision. The principal factor taken into account by the first instance Judge against the grant of an injunction was that if the non-compete covenant was enforced, Mr Gilligan would not be able to work for the period of the restraint. The Court of Appeal held there was no authority for this approach and the Judge should have instead considered whether the covenant goes no further than reasonably necessary to protect Planon's legitimate business interests.

The Court of Appeal also gave short thrift to the commonly argued point that an interim injunction should be awarded, as damages would be an adequate remedy for the employee because the employer is in a position to compensate loss of remuneration under the cross-undertaking in damages in the event the interim injunction is found at trial to have been wrongfully awarded.

Finally, the Court of Appeal held that it would be contrary to the balance of convenience to grant the injunction in any event, given that it only had four months left to run and that most of the damage caused to Planon as a result of Mr Gilligan's employment with SeviceNow had already been caused.

PRACTICAL IMPLICATIONS

In light of the Court of Appeal's comments regarding damages not necessarily being an adequate remedy for employees, employers should address this issue in pre-action correspondence with a former employee before injunctive relief is sought. It may well be the case that the new employer has agreed to pay the former employee until the restriction has expired.

In addition, the Court of Appeal's comments regarding delay are likely to have the most significant practical impact on claims involving the breach of restrictive covenants. In this case, it does seem unfair to Planon that there were only four months left to run on the restriction by the time of the Court of Appeal hearing. That said, this case demonstrates the need for employers to act expeditiously as soon as they become aware that an employee has joined a competitor in breach of restrictive covenants. Action needs to be taken in days, not weeks, in order to avoid an argument that the damage has been done and so the status quo permits the employee to continue in their new employment. This does not negate the need for pre-action correspondence, but employers should be ready (including having already obtained any necessary Board approvals and having appropriate funds in place) to push the button and issue a claim in the event a satisfactory response is not received from the former employee.

Addleshaw Goddard is recognised as the market-leading Business Protection Practice. Our team’s work focuses on advising organisations on team moves and helping employers to manage the risks stemming from employees, directors, shareholders and third parties who pose a threat to their legitimate interests, by taking action to enforce the employer’s rights and protect confidential information ranging from securing undertakings or obtaining injunctive relief, to pursuing claims for damages/loss of profits.

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