Former recruitment agency employees fail in application to recall interim interdicts enforcing non-compete employment contract clause

Lady Wolffe
Lady Wolffe

Three former employees of a recruitment agency who had interim interdicts granted against them preventing them from working for a rival consultancy have, along with their new employer, been unsuccessful in their application for recall of the orders.

The first to third defenders, Ross MacdougallLisa Mulholland, and Jenna Hill or Seagriff all worked for the pursuer. Apex Resources Ltd, until December 2020 or January 2021. Each of them had signed employment contracts preventing them from competing with the pursuer for a specified period, which the pursuer averred they had broken by joining the fourth defender, Caval Ltd.

The case was heard in the Outer House of the Court of Session by Lady Wolffe. The pursuer was represented by O’Brien QC, the first to third defenders by Tyre, advocate, and the fourth defender by Webster QC.

Competitive market

Both the pursuer and the fourth defender specialised in matching individuals and employers in the construction sector. Caval, although it was an established recruitment agency elsewhere in the UK, only established an office in Glasgow in January 2021. The first to third defenders all joined Caval shortly after leaving employment with the pursuer.

Each of the first three defenders’ employment contracts contained a number of restrictive covenants precluding them inter alia from competing with the pursuer or from soliciting clients of the pursuer they had been involved with for a specified period in the UK. In March 2021, Lady Wolffe granted interim interdict against each of the defenders.

The interdicts against the first three defenders were in identical terms and prevented them from being in competition with the pursuer, or assisting any person or firm in doing so, until a date six months from the date each defender left the pursuer’s employment. A further interdict was granted against all four defenders preventing them from using or disclosing to any third party any information obtained by the first three defenders in the course of their employment with the pursuer which was confidential to it.

At the recall hearing, the former employees challenged the non-compete clause as unenforceable. They also argued that the width of the interdict was such that each of the defenders could easily fall foul of the restrictions through error, mistake, or ignorance and certainly without any intention of doing so and could not work at all in their sphere of work within the UK until their respective expiration dates in June or July 2021.

It was accepted by counsel for the former employees that the pursuer had a legitimate interest to protect. However, while restrictive covenants were permissible to protect legitimate business interests of a company or employer, they were not designed to make employees unemployable or to take away their livelihoods.

In response to the application for recall, counsel for the pursuer submitted that the effect of the non-compete clause was a perfectly reasonable result given the highly competitive nature of the market which the pursuer and Caval both operated in. The pursuer relied on the integrity and stability of its workforce, as well as the details of confidential information it held, and its competitors could readily step and connect the same employers with the same candidates if the pursuer’s confidential information were disclosed to third parties.

Bespoke restrictions

In her opinion, Lady Wolffe first noted: “The question of whether a particular restrictive covenant is reasonably necessary for the protection of the employer’s legitimate business interests is likely to be highly sensitive to the context or field of employment to which it is applied, as well as to the case the employer makes in respect of the legitimate interest it seeks to protect.” 

She explained further: “Different considerations may apply in industries where establishing a client relationship requires compliance with detailed or onerous regulatory requirements, and where, as a consequence, once established, those same regulations create a certain friction or inertia for an existing customer to overcome in order to leave, if it is obliged to repeat those procedures with a new service provider.” 

Examining the circumstances of this case, she said: “The restrictions on each of the former employees is specific to the particular clients they had as the pursuer’s consultants. I also accept Mr O’Brien’s submission that, by reason of the use of mandates issued by departing clients in fields such as the financial services sector or law or accountancy, possible breaches of restrictive covenants may more readily come to the notice of a former employer in those sectors than in the field in which the pursuer operates.” 

She continued: “The pursuer has sufficient averments to advance a case that a non-compete clause may be regarded as reasonably necessary, notwithstanding the existence of the non-solicit covenant.” 

On whether the clauses resulted in the first three defenders being “unemployable”, Lady Wolffe said: “The non-compete clause does not have this effect. Rather, it is confined to the specific sector of recruitment in which the pursuer is a specialist provider. Moreover, the non-compete clause operates in a bespoke (not blanket) fashion in respect of each of the former employees, because it is confined to the specific periods for which each of the three former employees was employed; and there is the further qualification that he or she was ‘directly concerned’ in the pursuer’s business.” 

She went on to say: “The former employees are free to become employed or engaged in any recruitment agency other than one involving placements within the construction industry, or indeed they are free to become employed or engaged in any other field of employment.” 

The judge concluded: “Notwithstanding the carefully argued and full written and oral submissions on behalf of the former employees advanced at the recall hearing, I remain of the view that the pursuer has presented a prima facie case (in my view a strong one), that it has legitimate business interests to protect and that, on a proper construction, the post-termination obligations imposed by the contracts on the former employees go no further than is reasonably necessary to protect those legitimate business interests.” 

For these reasons, the defenders’ motion for recall was refused. 

© Scottish Legal News Ltd 2021

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