Restrictive Covenants – protecting your business: a case study

This case study illustrates how, despite their reputation for being unenforceable, it is valuable for businesses to have restrictive covenants and to take steps to enforce them.

The challenge

In this particular situation, we advised a large IT business who sought advice following the resignation of one of their senior account directors. He had openly declared his intention to join one of our clients’ competitors and was immediately placed on garden leave and asked to return company property. He had various restrictive covenants contained in his contract of employment including non-compete, non-solicitation and non-dealing.

Background

The employee returned his company laptop during his period of garden leave. Following our advice, our client had the laptop forensically examined and discovered, amongst other things, that the employee had installed a particular software application that allowed him to back up documents and files and to store them onto an alternative storage system. Rather recklessly on the part of this employee, there was evidence that he backed up board papers, acquisition documentation, key customer documents, pricing matrices.  These were all highly sensitive company documents.

What needed to happen?

Our client needed to have all these documents back and a very strong reassurance from the employee that he would not be retaining any copies. Also,  because he had demonstrably shown his disloyalty to his employer, they were determined that he would be held to his contractual restrictive covenants. Finally, they were understandably not content to continue paying an employee who had stolen from them.

What did Menzies Law do?

Drawing on our wide experience of advising businesses on protecting their legitimate business interests, we wrote to the employee and set out in no uncertain terms that not only was he in breach of various Acts (including the Theft Act, the Copyright, Designs and Patents Act, and the Data Protection Act) his actions were also a breach of confidentiality, an act of gross misconduct and clear evidence that he would be proceed to act in breach of his restrictive covenants once his garden leave period was finished. We gave the employee 7 days to confirm his agreement to the following:

1. his immediate dismissal for gross misconduct;
2.  to return all hard and soft copies of files he had backed up from his laptop;
3. to allow supervised access to his home computers/devices to ensure that none of our client’s confidential information was retained on them;
4. a specific undertaking from him that he would not commence employment or have any dealings with his new employer  for a period of 6 months
5. a contribution to our client’s legal fees.

Outcomes for our client

As the employee had been clearly ‘caught in the act’, he readily agreed to our proposals. All documents were returned, and as a result of the undertaking, he did not start work again for a period of 6 months. This gave our client sufficient time to ensure that all the employee’s former key clients were being warmly looked after by them and not tempted to join the employee at his new job.