Two recent cases, Planon Ltd v Gilligan in the Court of Appeal and AMOB Machinery Ltd v Smith-Hughes in the High Court, are a reminder of the need to act swiftly if an employer believes that a former employee might be misusing confidential information or breaching restrictive covenants after the end of their employment. Courts will only grant an injunction if this reflects “the balance of convenience” and any delay in applying for an application will be relevant to an assessment of where the balance of convenience lies.
Planon Ltd v Gilligan
In Planon, Mr Gilligan had resigned on notice in order to join a competitor. His employment terminated on 23 August 2021 and his employer knew by 2 September 2021 that he had started work for that competitor. On the face of it, this was in breach of a 12 month non-compete clause in his contract of employment.
There was correspondence between the parties in early October 2021 and Planon applied to the court for an interim injunction to enforce the non-compete covenant on 22 October 2022. The judge refused the application, in part because in the judge’s view it was unreasonable for the covenant effectively to prevent the employee from working for 12 months. However, the judge rejected Mr Gilligan’s argument that Planon’s delay in issuing proceedings meant that the court should refuse the application.
Planon appealed and the Court of Appeal accepted that the judge had applied the wrong test. The fact that the covenant would keep the employee out of the jobs market for 12 months did not mean it was unreasonable. Despite this, the Court of Appeal was still not prepared to grant an injunction given how long the employee had been working for the new employer and that by the time of the hearing the covenant only had four months left to run.
On the delay point, the Court was divided on whether Planon had waited too long to apply for an injunction. Lady Justice Laing accepted that the employee had been evasive about the identity of his new employer and that it was reasonable to try to reach agreement in correspondence before applying to the court. However, Lord Justice Bean commented that had Mr Gilligan’s new job posed an acute threat to Planon’s trade secrets and customer connections, it would have acted faster. Otherwise the damage the covenant sought to prevent would already have been done. In his view, delay would have been the basis for refusing the original application.
AMOB Machinery Ltd v Smith-Hughes
The delay in seeking an injunction in AMOB Machinery was significantly greater than that in Planon and this was fatal to the employer’s application.
AMOB applied for a 12 month springboard injunction to prevent Mr Smith-Hughes from gaining an unfair competitive advantage through alleged misuse of AMOB’s confidential information. Mr Smith-Hughes resigned and left employment in late April 2021 after a period of just six weeks. By 7 July 2021 AMOB had become aware (on its case, which was denied by Mr Smith-Hughes) that he had retained confidential information which it referred to as its “crown jewels” without its consent. However, it did not instruct solicitors until November or take steps to apply for an injunction until April 2022.
In the judge’s view, the evidence of misuse of confidential information was thin and in any event the delay in applying for relief was inordinate. A springboard injunction is designed to prevent former employees from taking unfair advantage of a head start they have obtained through unlawful acts. Granting an injunction restores a level playing field between the parties; its purpose is not to punish unlawful actions. Given the passage of time, the balance of convenience in this case fell heavily in favour of not granting interim relief. The judge was fortified in this conclusion by Lord Justice Bean’s comments in Planon, especially as the delay here was extreme in comparison with that in the earlier claim.
Next steps
Lord Justice Bean was keen to stress that he was not seeking “to encourage the approach of those litigators who fire off several aggressive letters per day”. However, both decisions illustrate the risk of not acting promptly if an employer has reason to believe that a former employee may be breaching restrictive covenants or misusing confidential information. The longer the employer waits to take action, the more difficult it is likely to be to persuade a court that the alleged harm caused by the ex-employee is real, or that the balance of convenience lies in favour of granting an injunction.
Authored by Jo Broadbent and Stefan Martin.
