Employees who deliberately misled employer slammed by court

Three employees who deliberately misled their employer when resigning, breaching their duties of good faith and mutual trust and confidence, and the restrictive covenants in their contracts of employment, are liable to pay substantial damages, according to a recent court decision.

Businesses will welcome the decision, confirming that a widely drawn restrictive covenant may be enforceable where an employee misleads his employer about his resignation plans.

The case concerned three employees who resigned from their employer over a six-month period and went to work for a competitor, without giving any indication that each of them had negotiated and signed contracts of employment with the competitor before leaving. The employer started proceedings, alleging that all three ex-employees were in breach of their fiduciary duties (in view of their senior positions in the company) and that two of them were also in breach of 12-month covenants in restraint of trade contained in a shareholders' agreement.

The ex-employees argued that the covenants preventing them from being engaged or interested in any competitor were too wide, and the restriction for 12 months was in any event too long. However, the court gave a comprehensive account of the law applying to restrictive covenants, and found that the employer had established a legitimate business interest that it wished to protect, and the restrictive covenants were a reasonable course of action to protect that interest.

In view of the underhand approach adopted by the ex-employees, the court made it clear that substantial awards of damages would be made.

Recommendation

Employers should consider the restrictive covenants of senior employees on a case by base basis, as they may be able to impose stricter restrictions on some employees than others.