US Employers Take Notice: Defend Trade Secrets Act Contains Noteworthy New Provisions

As reported last week in our Global Business IP & Technology Blog, the Defend Trade Secrets Act is currently on President Obama’s desk awaiting his imminent signature. Once enacted, the new law will provide the first federal civil claim for misappropriation of trade secrets. Although the new law is monumental in several respects, at least two provisions are particularly noteworthy for US employers.

First, the law provides that a court will not grant injunctive relief for actual or threatened misappropriation in the event the injunctive relief would prevent an employee from entering into an employment relationship. Also, a court is authorized to place conditions on a new employment relationship only if the prior employer shows a threatened misappropriation based on more than merely information the person knows. These provisions were included in order to limit plaintiffs’ ability to pursue misappropriation claims based on an “inevitable disclosure” theory.

Second, the new law contains an immunity provision that is intended to protect individuals from liability for disclosing a trade secret in confidence to an attorney or government official in order to report a violation of law.  Notably, the provision requires employers to provide notice of the new immunity provision in agreements that govern trade secrets or other confidential information.  This can be done by providing the notice in the agreement itself or by providing a “cross-reference” to a policy that relates to reporting suspected violations of law. If an employer fails to comply with the statute, the consequence is that the employer may not recover punitive damages or attorney’s fees in an action brought under the new law. Interestingly, the provision defines “employee” to include an employer’s independent contractors and consultants.

The new law presents an opportunity for employers to refresh and update their agreements and policies relating to the confidentiality of trade secrets and to re-examine their practices designed to preserve the secrecy of proprietary information.

“A descent into Hell, but less interesting” – can you sue for being bored at work?

The Guardian Online reports the case of Paris resident M. Frederic Desnard last week. He is claiming over £280,000 in compensation for a nervous breakdown allegedly caused by his managerial job at French perfumiers Interparfum.  However, no tale of excessive pressure and punishing working hours, this one.  Instead, M.Desnard claims that his job was so boring and devoid of responsibility that he was left with serious depression before finally being made redundant.  “I was ashamed of being paid for doing nothing” he said.

Even though apparently his job did not, M.Desnard’s claim does have at least two interesting points :-

  1. The claim includes holiday pay – presumably doing little or nothing all day is so wearing that you need a break from it now and again;
  2. The compensation sought is primarily damages for personal injuries and consequent harm to re-employment prospects, rather than a normal loss of employment claim.

We shall find out soon enough whether Mr Desnard’s unlikely claim will fly in France, but could it work in the UK? The argument is not quite so silly as it sounds:

The Working Time Regulations 1998 and the Management of Health and Safety at Work Regulations the following year contain the only English legislation about really boring jobs. Hidden away in Regulation 8 WTR is an obligation on employers to ensure that workers are given adequate rest breaks where their health and safety is put at risk because the work is “monotonous”.  The Health and Safety Regulations import into English law the “General Principles of Prevention” set out in a 1989 EC Directive on improving worker health and safety, and include an obligation to “adapt the work to the individual, especially as regards….. the choice of working methods….. with a view to alleviating monotonous work”.  You will see there is reference to the individual, an acceptance that there are those whose career aspirations would be only met by a role as a door-stop, as well as those with higher ambitions for themselves.

So there it is – if your job is really crucifyingly tedious (my words, not the legislation’s) then your employer might conceivably have an obligation to do something about it. However, we must be careful here to distinguish between the ordinary daily grind of a dull job and the sort of weapons-grade brain-frying mental inactivity which can do you actual psychiatric harm, the point where “bored out of your mind” moves from adjective to medical diagnosis.

These bits of UK Regulation are categorically not about people who feel capable of more, whose job does not stretch them or who can play an hour’s patience on their PC each day without anyone caring, or indeed noticing.  These provisions are essentially about roles which could or should be automated, where the hands may be moving but the brain is idling in neutral or off with the fairies somewhere else.  It is for very much this reason that the majority of UK stress claims are among blue-collar assembly-line type staff and not among white-collar executives even though (perhaps because) their role demands far more of them.

This right may exist in theory but in practice it would be extraordinarily difficult to make a personal injuries claim out of it. If you felt your brain and spirit turning to mush through under-use then surely you would resign, or at least complain to your employer so repeatedly (by definition, you have little else to do) that it finally takes your point and makes you redundant.  If you complained extensively without response, then you could potentially get to a constructive dismissal claim, but there is no suggestion of that in M. Desnard’s case.  Indeed he seems to have received his clearly unwelcome salary with remarkable fortitude for a considerable period before finding the strain of doing next to nothing too great and going off sick, “destroyed” (he says) by the effort.  The views of M Desnard’s more engaged colleagues on the gross unbalance of effort and reward he complains of are not recorded.  Sadly,    however, it is very hard to see an English Court being materially sympathetic to the travails of an employee who had spent material periods of  time being paid substantially more than his employer obviously thought he was worth.

Webinar: Employment Law Worldview Webinar Series – Australia, China and Japan

Squire Patton Boggs presents a series of webinars focusing on the key labour and employment issues in countries throughout Europe, the Middle East, Asia Pacific and the United States.

Given in English by our local labour and employment law experts, each 60-minute webinar comprises a 50-minute presentation covering key “hot topics” in the featured jurisdiction, followed by a 10-minute online question and answer session.

Intended to help you manage labour and employment law risk across your international operations, the webinars will be of interest to both HR professionals and in-house counsel.

On 25 May 2016 at 8.00 am GMT (9.00 am BST, 10.00 am, CEST, 4.00 pm AWST and CST, 5.00 pm JST), the featured countries are Australia, China and Japan. Dominique Hartfield from our Perth office, Daniel Leung from Shanghai and Kenichiro Kawada from Tokyo will provide an update on the topic of “Restrictive Covenants” in their region including:

  • the business interests a company can protect through the use of restrictive covenants and how to ensure the best prospects of enforceability
  • what action can be taken and remedies obtained where an employee breaches a restrictive covenant
  • how new employers may become liable when engaging employees bound by restrictive covenants
  • how social media can impact restrictive covenants
  • recent cases of interest in this area

Dominique, Daniel and Kenichiro will also briefly highlight other current hot employment topics to watch out for in their region.

Register

SPB launches ground-breaking reference tool for international HR and Legal teams

Let’s face it – some law firm differentiators just don’t work.   

We’ve tried a number in our time, from risibly pretentious podcasts to printing all our documents landscape to ensure that they stood out (or rather, didn’t fit) in client or Tribunal files, to an advertising campaign based on whippets and racing pigeons which still makes me wake up sweating nearly a quarter of a century later.   

But now we have something new in Labour and Employment, and if you are in Legal or HR with international responsibilities, this does work.  You know that the shifting sands of UK employment practice can be treacherous enough, but when you have to operate in multiple jurisdictions, keeping on top of all the relevant law and practice across the piece becomes nearly impossible.  When an issue arises you can spend hours on the internet and thousands on local advice and still not be sufficiently confident to proceed with that dismissal, report or recommendation to your Board.  Is what you are being told up to date, accurate, complete and the best practical solution, or just a rehearsal of the law?   

Meet Global Edge.  This is our advanced Labour and Employment information portal, giving you access within a few clicks to current law and HR practice across the world.  Global Edge provides comprehensive plain-English guidance in over 20 separate topics from business immigration to zero hours contracts in 30 countries from Argentina to the UAE (we really need Zambia to make that one work, but never mind).  You want an immediate brief on minimum terms of employment in Malaysia?  Done.  Business transfers in Belgium?  Discrimination in Denmark?  Interns in India?  Notice in Norway?  [Editorial note: stop it now, that’s enough].  Or do you want a comparative report – are redundancy costs less or covenants harder to enforce in Chile or China?  Done, in each case in minutes only.  Global Edge can produce reports on single or multiple countries or topics in a variety of formats.  For your forward planning purposes, it includes “On the Horizon” and “News” features also.    

The content is updated at least quarterly by us and our global network of preferred specialist labour and employment lawyers.  Global Edge issues subscribers with email alerts for significant legal changes in any of your subscribed countries, together with periodic newsletters and ad hoc articles.  It is compatible with mobile devices including the ability to search and produce reports from your iPhone, iPad and others.  

There is a cost.  We can talk to you about that, depending on how many countries you would want to subscribe for (more countries equals less cost per country).  But before we do, please let us show it to you first.  For an absolutely no-commitment demonstration, please visit http://www.globaledge.legal and just click on the video.  Go on, take a look – what’s the worst that can happen?    

If you think Global Edge may be of interest to you then we would be delighted to talk to you about it.  Please contact Olivia Mardon on 00 44 207 655 1034 or Olivia.Mardon@squirepb.com.

 

 

Uber Settles for Big Bucks

After years of contentious litigation, Uber Technologies Inc. has decided not to leave its fate in the hands of jurors. Instead, Uber announced on Thursday that two of the most closely watched class actions against it had settled…for $100 million.  In addition to the hefty price tag, Uber made a number of concessions including:  Uber cannot deactivate drivers for refusing rides; Uber will create an internal appeals process; Uber will establish a “driver’s association” to meet quarterly where drivers can “discuss the issues that matter most to drivers”; and quality courses for deactivated drivers will be made available.  Nevertheless, the decision to settle raises more questions than it answers.

First of all, the settlement leaves one of the (if not the) biggest legal challenge undecided:  are Uber drivers in California and Massachusetts employees, or independent contractors?  Uber CEO Travis Kalanick said the “settlement recognizes that drivers should remain as independent contractors, not employees.”  But that does not address the legal nuts and bolts, and it is entirely possible that another lawsuit may be brought in the future.  This is especially true considering a number of concessions will expire in at most two years.

Second, some of the new policies Uber is rolling out as part of the settlement contain serious ambiguities. For instance, Uber will no longer deactivate drivers for refusing rides.  Instead, drivers may be deactivated for “sufficient cause.”  What does that mean?  Well, the new internal appeals process (in California and Massachusetts) will surely be plenty busy answering that question!  And hey, what if drivers do not agree with that internal appeals process?  Then they can arbitrate the decision under Uber’s new arbitration clause.  Of course, the new clause has yet to be challenged in court, so who knows if that will stand the test of time.

At the end of the day, everybody got at least some of what they wanted: Uber gets some certainty in its payout, and the drivers get some clarity in Uber’s policies and procedures (and a relatively small check).  Sure, it may look like Uber is just kicking the proverbial can down the road, but at least you can hail an Uber to keep up with it.

A Deep Dive into the New STEM OPT Extension Rule: What Employers, Big and Small, Need to Know

On March 11, 2016 the Department of Homeland Security (DHS) issued its final rule for international students with U.S. degrees in science, technology, engineering and mathematics (STEM) seeking extension of Optional Practical Training (OPT) (the “Final Rule”) employment authorization. The Final Rule creates a new 24-month STEM OPT extension period along with additional government oversight and substantial new requirements for students, their universities, and their potential STEM employers. International (F-1) students graduating with STEM degrees may now be issued work authorization for up to 36 months if they will work for E-Verify subscribed employers.

The new rule takes effect on May 10, 2016. For a general summary of this rule consult our recent client alert. Additional guidance can be found at the DHS website Study in the States. Specifically, on the STEM OPT Hub there are sections geared for students, schools and employers.

Companies hiring and employing STEM OPT graduates should be aware that the Final Rule will impose new employer requirements and compliance obligations. Consistent with the 2008 Final Rule, employers will still need to be enrolled in E-Verify and remain in good standing with the program. In addition, the Final Rule will require employers to:

  • Implement a formal training program to augment the student’s academic learning through practical experience;
  • Provide an OPT training opportunity that is commensurate with those of similarly situated U.S. workers in duties, hours and compensation;
  • Complete the Form I-983, Training Plan for STEM OPT Students. In this form, you must attest that:
    • The employer has enough resources and trained personnel available to appropriately train the student;
    • The student will not replace a full- or part-time, temporary or permanent U.S. worker; and
    • The training program will assist the student attain his or her training objectives. In this regard, the employer must review and sign a student-completed annual self-evaluation on their training progress; and
  • Report material changes to the STEM OPT student’s employment to the student’s Designated Student Officer (DSO) within 5 business days.

The Final Rule defines “similarly situated U.S. workers” to include U.S. workers performing similar duties and with similar educational backgrounds, employment experience, levels of responsibility and skill sets as the STEM OPT student. The Rule further states, if the employer does not employ and has not recently employed more than two similarly situated U.S. workers, the employer must instead ensure that the terms and conditions of the STEM OPT opportunity they offer is commensurate with those similarly situated U.S. workers employed by other companies of analogous size and industry and in the same area of employment.

Moreover, the Final Rule provides U.S. Immigration and Customs Enforcement (ICE) with site visit authority. ICE may visit employer worksite(s) to verify whether they are meeting the STEM OPT program requirements, including whether they are maintaining the ability and resources to provide a structured and guided work-based training experience for the STEM OPT student. ICE  will provide notice to the employer at least 48 hours in advance of any site visit, unless the visit is triggered by a complaint or other evidence of noncompliance with the STEM OPT extension regulations. In such cases, ICE may conduct a site visit without notice.

In completing the Form I-983, Training Plan, employers will have to furnish DHS with very specific detailed information, including the employer name, address, website url, number of FTEs in the U.S., NAICS code, as well as the name, title and contact information of the individual (“official”) providing the training.  In addition, employers will have to provide the following details regarding the training program:  OPT training hours, start date of employment/training, compensation (salary, stipend, stock options, housing benefits, tuition cost waivers or other), a description of the training tasks and assignment as well as an explanation of how the training relates to the student’s STEM degree and a description of the training plan goals and objectives, employer oversight and measurement/assessments of the trainee. The completed Form I-983 will accompany the F-1 student’s application for extension of their STEM OPT work authorization document (EAD).

What do these changes mean for start-ups and small employers wishing to employ STEM OPT graduates? According to the comments supplementing the Final Rule and the STEM OPT Hub, start-ups and small employers need not worry if they comply with the requirements detailed above. However, that may be easier said than done. With regard to start-up businesses, the comments state, “alternative compensation may be allowed during a STEM OPT extension as long as the F-1 student can show that he or she is a bona fide employee and this his or her compensation, including any ownership interest in the employer entity (such as stock options), is commensurate with the compensation provided to other similarly situated U.S. workers.” However, the comments also state that certain employment situations will not support a STEM OPT extension. Such arrangements include sole proprietorships (where the student is self-employed), employment through temp agencies, multiple employer arrangements, consulting firms providing labor for hire (as opposed to controlling and directly employing the student) or any relationship that is not deemed a “bona fide employer-employee relationship.”

Whether DHS will interpret these new rules expansively will become evident once the rule takes effect and DHS (via the US Citizenship and Immigration Service) starts to evaluate the training plans submitted with STEM OPT extension applications. From a compliance perspective, it will be interesting to see how quickly ICE ramps up its site visit program and what type of employers will be targeted. Stay tuned to this space for more updates and developments related to the new STEM OPT extension Final Rule.

Getting To Equal Pay, and Maintaining It

Tuesday April 12 was Equal Pay Day, just one of the many days this year that placed equal pay in the news.  We’ve already apprised you about California’s stringent amendment to the Fair Pay Act and the legal requirements it imposes. In case you missed it, Glassdoor just published a study [PDF] based on more than 505,000 salaries shared by full-time U.S. employees.

This study maintains that much of the wage gap may be attributed to a division of jobs (e.g. engineering being dominated mainly by men and human resources being dominated mainly by women). However, even when you look at men and women in the same jobs and attempt to control for legitimate business reasons such as education, skills, and experience, there remains a wage gap of 5.4% in base pay and 7.4% in total compensation.  That’s the gap that businesses need to close to be compliant with the California Fair Pay Act, which requires that 100% of any wage gap be explained by such legitimate factors. Glassdoor’s research found that 33% of the gap cannot be explained by legitimate factors and may be due to gender bias. If this is true, then once a business closes a gap, it’s possible that bias may creep back in and the gap may reoccur. So what’s a business to do? Stanford’s Clayman Institute for Gender Research, which conducts research in this area, offers practical advice about how to avoid bias in the performance review process, which includes:

  • Setting objective criteria and prioritizing that criteria so it is applied equally.
  • Excluding criteria, such as participation in certain events, more open to men than women.
  • Focusing comments on actual skills and accomplishments rather than personality traits where bias often slips in (e.g. when men assert themselves they are often characterized as effective whereas women may be tagged as aggressive).
  • Ensuring developmental feedback and leadership feedback is balanced (often women receive more developmental feedback and men more leadership feedback).

Pay transparency is another method to eliminate gender gaps. Some companies base starting salaries on market rates eliminating the negotiation process that typically favors men. Institutionalizing objective criteria from hiring through promotion will prevent pay gaps at the start of employment and keep them from happening throughout the review, raise, and promotion process.

 

Bad medicine – the dangers of contacting an employee during sickness absence

It is a common issue facing employers; you want to start or take next steps with a grievance or disciplinary investigation. To do the right thing you want to meet with the employee to discuss your concerns but the worker is on sick leave or goes sick, often citing work-related stress.  Can you contact the employee while he/she is off sick?   There is an obvious answer – during that time the employee remains subject to his/her contractual duties, including compliance with your reasonable management instructions.  That should easily cover a request to discuss work-related concerns, surely?

Not so surely, actually, following the decision of the EAT in Private Medicine Intermediaries Limited v Hodkinson (UKEAT/0134/15/LA) as issued last month.

Miss Hodkinson took a period of sick leave for work-related depression and anxiety after complaining of bullying by her managers. PMI’s Chief Executive wrote to her to ask if she wanted to raise a formal grievance. Miss Hodkinson replied that she was in “no fit state to communicate without breaking down” and felt genuinely distraught about her treatment.

The CEO wrote again to Miss Hodkinson on 8 November 2013 confirming he had spoken to her manager to find out what had happened and that as a result he had six “areas of concern” he wanted to discuss with her. None of these were very serious and, it was subsequently discovered, most of them had already been dealt with.

Miss Hodkinson resigned, making specific reference to the November letter, “You make six further allegations relating to my performance and commitment, the timing and nature of which can only be intended by you to elicit my resignation”. She claimed that the November letter was a repudiatory breach of the implied term of mutual trust and confidence.

The ET recognised the genuine nature of PMI’s concerns, PMI’s right to raise these issues with an employee, and that PMI was not trying to elicit Miss Hodkinson’s resignation. The Tribunal concluded also that Ms Hodkinson was prone to over-sensitivity and exaggeration and that her illness was not actually the product of bullying or similar but of her own misperception of issues properly raised with her.  Regardless of its cause, however, it was common ground that she was very ill and that PMI knew it.

Based on that knowledge it decided that PMI should have reasonably known that the November letter would cause Miss Hodkinson distress and therefore that she was entitled to resign and claim constructive unfair dismissal.

But if everything that caused an employee distress was grounds for a constructive dismissal claim, how could the employer ever start a disciplinary process or refuse a promotion or reject a flexible working application? The constructive dismissal test requires the employer to act “without reasonable and proper cause” – in the examples above that would be a necessary part of managing the employment relationship and so that reasonable and proper cause test would be satisfied.  Here the CEO was found not to have that cause – he did not have to write at that time (while he knew she was so sick and likely to be badly affected by his letter), nor raise new performance concerns, nor include matters which were already resolved.

Lessons for employers 

1          There is a danger that employers may now feel they should make no contact at all with an employee during a sickness absence, particularly if that absence is due to work-related stress or if there is any chance that the contact will upset him/her. That is not what this case says.

2          As an issue of principle, keeping in contact with employees who are absent from work because of mental ill-health is an important part of a fair procedure in managing those absences (not to mention of potentially material psychological benefit to the employees).  Employers should still try to maintain contact during any period of sickness absence, unless clear medical evidence suggests this is inappropriate.

3          Correspondence about grievance or disciplinary proceedings obviously carries a reasonably high potential for distress, but if it is important and needs to be dealt with promptly, reasonable and proper cause will exist.  Remember the Guidance issued to OH functions by the Royal College of Physicians – that although attending such a meeting (or by implication writing or talking about it) may distress the employee, it is generally best for his health that he gets on with it and is not just allowed to sit and fester.

4          These principles apply only to those whose resilience to normal employer correspondence has been compromised by the nature of their sickness – so no worries here if your employee has a bad back, in other words.

5          If a serious matter comes to the attention of an employer while the employee is off sick, it is best practice to consider contacting the employee in an appropriate manner. To make things easier the employer could suggest other methods of contact rather than speaking directly, for example by letter, email, via the employee’s spouse or partner, or by meeting in a location other than the workplace.  It is always advisable to consider the urgency and seriousness of the matter to be raised and that employee’s individual circumstances before deciding what action to take.

6          Lack of intention to upset or get the employee to resign is immaterial.  Ms Hodkinson alleged that the CEO was deliberately pushing her out (over-sensitivity and exaggeration being a bit of an issue, as I say) – while that was flatly rejected by the Tribunal, the predictably adverse impact and lack of objective need for the 8 November letter in those terms at that time were enough combined without any need for any ill-intent behind it.

NLRB Majority Reaffirms Standard Applied in Employer Rules Cases Over Dissent Advocating New Standard

It’s a nearly universal truth that all employers have certain rules they have put in place to govern certain aspects of the workplace. Such rules include workplace conduct rules, rules relating to use of social media, solicitation and distribution policies, and the list goes on.  Many if not most employers inform employees of these rules through the ubiquitous “employee handbook.”  If you have been a regular visitor to this blog, you already know that over the past few years, the National Labor Relations Board (NLRB) has essentially become the employee handbook police, issuing decision after decision striking down employer’s – both unionized and non-union – workplace rules as unlawful.  We have previously written about the NLRB and its General Counsel’s stance on the legality of handbook rules, but now, in light of the NLRB’s most recent decision in William Beaumont Hospital [PDF], it is a topic worth revisiting.

The NLRB’s April 13 decision in William Beaumont Hospital is important because it is the lengthiest explanation to date, on both sides of the issue, as to how the NLRB does (and, from the dissenting NLRB’s member’s perspective, how it should) evaluate workplace rules established by employers.  The discussion in the case revolved around the standard the NLRB applies when reviewing employer rules.  This standard which came out of a case called Lutheran Heritage Village-Livonia (Lutheran Heritage), explains that an employer’s rule violates Section 8(a)(1) of the National Labor Relations Act if it would “reasonably tend to chill employees in the exercise of their Section 7 rights.”  Rules that are specifically intended to prevent the exercise of a right – i.e., a rule that explicitly prohibited union organizing – or a rule that is applied to interfere with protected rights – i.e., applying an otherwise lawful non-solicitation policy only to prohibit union-related solicitation – violates this standard.  But what about rules that on their face do not directly implicate protected rights, and which are not applied to restrict those rights?  Put another way, can the mere maintenance of a facially neutral rule violate the NLRA?  Under Lutheran Heritage, the answer is yes, if an employee would “reasonably construe” the rule to restrict the employee’s ability to engage in activities that are protected under the statute.  Those rights include not only the right to engage in union organizing activity and to bargain collectively, but also to engage in other concerted activities for the purpose of mutual aid or protection.

Enough of the dry legal stuff. Why is William Beaumont Hospital important?  First, it upheld the Lutheran Heritage standard, which as the dissent in the case argues, deems “facially neutral policies” unlawful even when not applied in an unlawful manner.  Second, the case is important because of the dissent.  Citing to various U.S. Supreme Court decisions, the dissent forcefully criticizes the NLRB majority for endorsing and refusing to correct the Lutheran Heritage test, which the dissent argues (and anyone who has been on the unfortunate end of an NLRB charge dealing with policies will agree) results in “arbitrary results.” In its place, the dissent proposes a balancing test, whereby employees’ Section 7 interests are weighed against the employer’s particular business justifications for the rule in question.  Unmoved, the majority pushed back, suggesting that a finding that “a particular rule threatens to have a chilling effect does not mean, however, that an employer may not address the subject matter of the rule and protect his legitimate business interests [with a] more narrowly tailored rule that does not infringe on Section 7 rights.”

So for now, Lutheran Heritage remains the test that will be applied to employer rules.  Importantly, though couched in “labor” legalese, this standard is applicable to all employers, whether their employees are unionized or not.  That means every employer should be on the lookout for these NLRB decisions, tweaking policies as necessary to ensure they (hopefully) comply with the current (but ever shifting) interpretation given by (at least some members) of the NLRB.

Restriction refresher – how not to draft your covenants

Here is a question for you – do you know what an agronomist is? Anybody?

Well, he/she applies the science and technology of producing and using plants for such purposes as food, fuel, and soil management. Well done if you got that.  If not, you heard it first at the Employment Law Worldview blog.

I mention the agronomist because of a recent restrictive covenant case involving such a fellow and his agricultural merchant ex-employer. Bartholomews Agri Food Limited v Michael Andrew Thornton is about a company attempting to bring an injunction against its former employee as a means of enforcing restrictive covenants and failing for reasons entirely within its own control.

Mr Thornton worked with the company for 18 years, beginning at trainee level. His contract of employment (entered into when he started as a trainee and not updated since) contained a covenant preventing him from engaging in “work, supplying goods or services of a similar nature which compete with the company to the company’s customers, with a trade competitor within the company’s trading area… or on [his] own account without prior approval from the company” for six months after the termination of his employment.  There was also a provision that BAFL would pay him in full during the 6 months of the restriction, even if he got another (not-competing) job during that time, a common provision in parts of continental Europe but very rare in the UK.

When he quit, Bartholomews understandably did not want Mr Thornton encroaching on its business and so sought to enforce this restriction by means of an injunction, relying on its customer connections and confidential information as protectable interests.

This got off to an inauspicious start, with the Judge declaring that these provisions “have not been well drafted”, never an easy moment if you are represented in Court by the lawyers who drafted them.  Gritting his teeth, he persevered and quickly found the restrictive covenant to be in restraint of trade and unenforceable.  It had been imposed on the agronomist when he was a trainee, at a time when he had no experience or customer contacts to protect, and so such terms were “manifestly inappropriate for such a junior employee”.  If the restrictive covenant was unenforceable when entered into, it remains so even if promotions or other changes in circumstances subsequently make it appear reasonable.  Sadly the reverse is not true – if it was reasonable when entered into, changing circumstances can still render it not so by the time it comes to enforcing it.

The Judge also found the restriction to be wider than necessary, as it included all customers of Barts and its associated companies, whether or not Mr Thornton had ever worked for them or even knew of them. He was responsible for just over 1% of the Group’s turnover so it was hardly reasonable to restrict him from the customers that made up the other 98% with whom he had no connection at all.

The confidential information point was also dismissed as there was no evidence as to the specific confidential information that Mr Thornton was alleged to have, as opposed to the admitted product of 18 years of general agronomy experience, skill and knowledge.   The fact that he was paid during the period of the restriction drew a particularly short response.  The Judge simply found it contrary to public policy that an employer could in effect purchase a restraint.  This is a harder line than taken in some other cases where payment for the restriction period  has not been determinative but was certainly still relevant to whether the restraint works too onerously on the former employee.

While this is not a ground-breaking decision, it is a good reminder of the pitfalls of restrictive covenants.

Lessons for employers

Here are some important tips when you are considering your restrictive covenants, both when imposing them and enforcing them:

  • Don’t impose a blanket restriction across all customers/suppliers of your business; this will be much too wide. Ensure instead that the restriction applies to a more reasonable collection of customers, usually those with whom the employee dealt in a set period prior to his departure.
  • Don’t impose unreasonable restrictions on more junior employees assuming that they will ‘grow into’ their restrictions when they have been promoted. The enforceability of covenants will be determined as at the date they were entered, not just when you try to enforce them.
  • Do be seen to consider the restrictive covenants at any time that an employee is promoted or entering new terms. Changed circumstances may allow you to ‘upgrade’ the restrictions as an employee becomes more senior, or may give you the opportunity to repair older restrictions that you worry may not be enforceable.
  • Do ensure that your restrictive covenants are very clear about what they are meant to protect. What is confidential information in the context of your business? Who are the key employees you do not want solicited? Who are the customers the employee cannot approach? Is the period of restraint reasonable? – better something shorter than you would ideally like than something longer but consequently unenforceable.

Don’t assume that paying an employee during the period of his restriction will guarantee the enforceability of it. However, remember that if you have the option of garden leave, this can effectively take an employee off the market for the length of his notice period without worrying so much about enforceability.  It is therefore helpful to have garden leave clauses in employment contracts too and to use them.

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