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Supreme Court Ruling Shows ‘Vital Role Of Restrictive Covenants’

Lessons To Be Learned From Case, Employment Lawyer Urges


By Rob Dixon

A recent decision handed down by the Supreme Court has once again highlighted the important role that restrictive covenants play in employment contracts, according to a legal specialist at Irwin Mitchell.

The case of Vestergaard Frandsen v Bestnet Europe Ltd related to several ex-employees leaving the former and establishing the latter firm, which both traded in direct competition to Vanguard and also developed a rival product.

Vestergaard argued that its former staff members and Bestnet as an entity had unlawfully used trade secrets. Specifically, they claimed that a former sales manager helped set up Bestnet and ‘poached’ a scientific consultant who previously worked with them, as well as that she had implied knowledge of the misuse of confidential information.

However, the Supreme Court ruled that the former sales manager was not liable for misuse of confidential information in light of her state of mind – she did not know the identity of the confidential information or that any information had been or was being used or misused – while the argument on implied knowledge was disregarded.

Glenn Hayes, a Partner and employment law specialist at Irwin Mitchell’s Leeds office, said the case demonstrated the vital impact that restrictive covenants can have when included in contracts.

He said: “In this case, the former sales manager’s contract merely required her to maintain confidentiality in relation to ‘any knowledge gained in the course of employment’.

“Had it included restrictive covenants covering issues of non-competition, misuse of confidential information, and non-solicitation to stop a rival business ‘poaching’ key personnel, this may have been enough to prevent Bestnet setting up in direct competition with Vestergaard, and developing a product to rival that of Vestergaard.

“Covenants would have been particularly useful as the Supreme Court refused to imply a contractual term that the former sales manager wouldn’t assist others in abusing the employer’s confidential information, as she neither had relevant knowledge of the confidential information nor knowledge that others were misusing this information.”

Glenn added: “Restrictive covenants are undoubtedly a complex area of employment law and an area where employers need to ensure they take care.

“The drafting of these clauses is key to ensure that they are drafted as ‘tightly’ as possible in terms of protecting legitimate business interests, whilst not being too restrictive to amount to an unlawful restraint of trade.

“As such, taking legal advice on the drafting of these clauses is often crucial.”

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