Don’t assume your restrictive covenant has “teeth”
Many employers will rely on a “non-compete” or restrictive covenant clause in the contract of employment to give them reassurance that their employees won’t start a business in competition or work for a competitor.
But in reality, how easy is it to enforce these clauses? In fact, the starting position of any court hearing a case where an employee is accused of breaching a restrictive covenant is that the clause itself represents an unenforceable restraint on normal trade! This is a high bar and the employer will have to demonstrate damage or detriment to its business to have any chance of success.
If an employer wishes to start legal proceedings against an ex-employee whom they believe may be breaching their restrictive covenant the process is for the employer to raise an interdict or interim interdict in Scotland (or an injunction in England and Wales) and use evidence that the employee has already breached the contractual clause, or provides evidence that there is reasonable belief that it will be breached.
The interdict may be granted without the employee’s knowledge and this kick starts the process of bringing proceedings in either the Sheriff Court or the Court of Session.
It may be sufficient for the employee to confirm that they have no intention of breaching the contractual clause; in which case the court will remove the interim interdict. However if an interdict is granted and the employee fails to comply they will be found in contempt of court and may receive a sentence of up to three years in prison, a fine or both. In the Sheriff Court the maximum prison sentence and fine are three months and £2,500.
The court will have to decide if:
- the covenant is enforceable
- whether the employee has breached the covenant
- whether the breach has caused the employer loss and how the loss should be measured.
What is clear is that any restrictive covenant can only be enforced if it is proportionate and a necessary means of protecting the business of the employer. It is it deemed to be too wide it will not carry sufficient weight to be enforced.