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Non-Compete Clauses and Interim Injunctions - An Important Case for Employers

on Friday, 17 June 2022.

In the case of Planon Ltd v Gilligan, the Court of Appeal declined to issue an interim injunction to enforce a 12 month non-compete clause that had four months left to run.

What Is a Non-Compete Clause?

A non-compete clause is a type of post-termination restriction which prevents a former employee from working for a competitor for a defined period of time. They are traditionally harder to enforce than other types of post-termination restriction and can be void for being in restraint of trade. However, in certain circumstances a non-compete clause might be enforced, namely where:

  • the employer has a legitimate proprietary interest that it is appropriate to protect
  • the clause goes no further than is reasonably necessary to protect that interest

What Is An Interim Injunction?

An interim injunction is a court order that requires a party to either take specific action, or to refrain from a specific act, for a defined period of time until a dispute can be explored fully at trial. It is one of the remedies available to employers seeking to enforce post-termination restrictions. An employer might seek an interim injunction where there is an urgent need to protect its business interests, for example by preventing a former employee going to work for a competitor where this would be in breach of an obligation in their contract.

In considering whether to grant an interim injunction, the court must consider:

  • whether there is a serious issue to be tried, ie whether the claimant has a strong or merely an arguable case
  • whether damages would be an adequate remedy
  • the balance of convenience of each of the parties should an order be granted
  • whether the status quo should be maintained

What Happened in This Case?

Mr Gilligan was employed by Planon Ltd between 9 February 2015 and 23 August 2021 when his period of notice expired following his resignation on 23 July 2021. There was a 12 month non-compete clause in Mr Gilligan's contract of employment, which said he could not work for a competitor for 12 months. Mr Gilligan was put on garden leave on 6 August 2021, and the 12-month period started to run from that date. Mr Gilligan commenced work with a 'key competitor' of Planon's on 1 September 2021.

Planon discovered Mr Gilligan's new job on 2 September 2021. On 20 September 2021 Planon issued a letter before claim to Mr Gilligan. There followed a period of negotiation, during which Planon sought internal board approval to 'proceed further' when it was dissatisfied with Mr Gilligan's responses. Planon issued a claim on 21 October 2021, seeking an interim injunction to enforce the non-compete clause in Mr Gilligan's contract.

The High Court held an interim injunction should not be issued in respect of the non-compete clause. Planon appealed to the Court of Appeal. The Court of Appeal also declined to enforce the non-compete clause, but for different reasons than the High Court.

What Did the Court of Appeal Decide?

The Court of Appeal disagreed with the High Court judge's analysis on the enforceability of the non-compete clause. It was not clear whether the High Court judge had considered the correct legal test, namely whether Planon had a legitimate proprietary interest it was seeking to protect, and whether the clause went no further than reasonably necessary to protect that interest. Instead the High Court had based its decision primarily on the effect of the clause on Mr Gilligan's employment prospects. This was not the correct approach.

Importantly, the Court of Appeal commented on the effect of delay on the proceedings. By the time of the Court of Appeal hearing, Mr Gilligan had been in his new post for around seven months, meaning the non-compete clause had around four months left to run. The Court of Appeal found the 'balance of convenience' pointed away from granting the injunction at that stage. Any damage caused to Planon's business due to Mr Gilligan's new role was likely to have already been done.

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What Can Employers Learn from This Decision?

This decision demonstrates the importance of taking swift and urgent action in order to seek injunctive relief for breach of a post-termination restriction. The fact the non-compete clause had only four months left to run by the time of the Court of Appeal hearing was significant. In addition, there was a discussion around the implications of the initial seven week delay between the date Planon became aware of Mr Gilligan's new job, and the date the claim was issued. The High Court, and one Court of Appeal judge, thought it was reasonable for Planon to take as long as it did to issue proceedings on the basis it took time to explore the prospect of settlement before doing so. However, one of the other Court of Appeal judges took a different view, namely that any damage to Planon's business would have been done within days of Mr Gilligan commencing his post, so that proceedings should have been brought as a matter of urgency much sooner.  

Employers should ensure they take prompt action to protect their position where they consider their business is sustaining damage due to a former employee's breach of a post-termination restriction.

For more information or advice, please contact Sian Knight-James in our Employment Law team on 07468 698 971, or complete the form below.

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