(4 min read)
Recent developments in Ireland and the US highlight the balance required in enforcing non-compete clauses within employment law. In the US this year, a Federal Trade Commission ("FTC") ruling aimed to invalidate non-compete covenants, though this was halted by a federal court, leaving such clauses enforceable pending appeal by the FTC. In contrast, Irish Courts consistently assess the enforceability of these clauses, emphasising reasonableness, necessity and proportionality to safeguard both employers' legitimate interests and employees' career mobility. In Ireland, recent cases, such as Zeahix Limited & Anor -v- Upton & Ors and Creganna -v- Cullen, demonstrate the Courts' willingness to intervene, which includes the granting of temporary injunctions to enforce non-compete clauses. These instances underline the importance of precise drafting, tailored to the employee's specific role and the legitimate business interest, ensuring the enforceability of non-compete clauses while protecting both parties' interests.
Recent cases in the US and Ireland serve as crucial reminders of the complexities involved in enforcing non-compete clauses in the employment context and the need for precise drafting. This ensures that any restrictions designed to protect an employer's legitimate business interests are effective and do not unduly restrict an employee's ability to move on in their career.
This issue came to the forefront in recent months when the FTC delivered a ruling on a post-employment non-compete clause. The ruling decided that with effect from 4 September 2024 such covenants would not be valid. This ruling was blocked by a federal court and non-competition clauses remain enforceable pending an appeal by the FTC. In Ireland, the Courts have always been willing to intervene and to consider the enforceability of post termination restrictions on competition – balancing the interests of the employer and the departing employee.
Restrictive covenants are contractual terms that restrict an employee’s ability to work in competing businesses or start their own competing business for a certain period after leaving the business in which they were employed. These terms may include soliciting employees, customers or suppliers and protecting confidential or proprietary information.
Overall, Irish Courts evaluate non-compete clauses on the grounds of reasonableness, necessity, and proportionality. This ensures they are not overly restrictive while protecting legitimate business interests. Recent case law shows that the Courts are willing to intervene, potentially granting temporary injunctions while examining the scope and reasonableness of the restriction.
- In a case currently before the High Court, Zeahix Limited & Anor -v- Upton & Ors it has been reported that the employer claimed a former director and shareholder has set up a rival business, breaching a non-compete clause. The employer obtained an interim injunction against the former employee restricting them from competing and from soliciting employees and customers.
- In April 2024, in Creganna v Cullen [2024] IEHC 231, Creganna, a medical device company, sought an interlocutory injunction to enforce a non-compete clause against its former employee, Mr. Cullen, from joining a competitor, Lake Region Medical. The Court's decision to grant the injunction was based on several factors: the clause's reasonableness, the necessity to protect Creganna's business interests, the balance of convenience, and the adequacy of damages for both parties. The Court concluded that maintaining the status quo pending a full trial was pragmatic, with Creganna's willingness to continue to pay Mr. Cullen's salary as a factor in its decision.
- Net Affinity Ltd v Conaghan [2012] 3 IR 67 illustrated the importance of geographic and scope limitations in non-compete clauses. The Court deemed the non-compete clause in Ms. Conaghan’s contract void due to its overly broad scope. However, it granted an injunction to protect confidential information retained by Ms. Conaghan, preventing her from breaching her duty of confidentiality and restraining her new employer, from soliciting Net Affinity's clients.
- The handling of Ryanair v Bellew [2020] 3 IR 601 by the High Court of Ireland underscores the nuanced approach to non-compete clauses in employment contracts. Mr. Bellew, hired as Ryanair's COO in 2017, agreed to a 12-month non-compete clause in 2018. After resigning in 2019 and accepting a position with easyJet, Ryanair sought an injunction to prevent him from joining a competitor, citing his access to sensitive information. While the Court found the clause justified it also found it to be overly broad, restricting employment with any airline, not just direct competitors, and therefore deemed it an unjustified restraint of trade. It is interesting to note that if the clause was drafted specifically to "low cost" or "budget" airlines only as well as a position immediately below and above his own, the Court may have been minded to enforce the restrictive covenant.
These cases illustrate the importance of ensuring that non-compete clauses are drafted carefully to render the Court more likely to enforce such clauses. When reviewing restrictive covenant clauses in employment contracts employers should consider the following:
- Custom-tailor clauses to fit the specific role and level of access to confidential information relevant to the relevant employee;
- Regularly updating such clauses as an employee's role evolves;
- Clearly justifying the need for restriction in order to protect the business's legitimate business interests including setting reasonable geographic and time limits; and
- Legal advice should be sought to ensure the restrictive covenants comply with current laws and case precedent.
