Transcription

• Speaker #0

  Today, in the Lefebvre HR and Employment Law podcast, we're discussing the High Court judgment in the case of DARE International Limited and Soliman and Hikmet, in which the High Court was asked to grant an injunction to enforce a non-compete covenant against two senior employees who had been on long-term sick leave and away from their former employer's business for an extended period. In the absence of any express contractual obligation, Employees are free to compete with their employers after their employment comes to an end. To prevent this, employers will often include non-compete covenants in senior employees' contracts which stop them from engaging in competitive activity such as working for or establishing a competing business for a set period after they leave employment. In previous cases, the courts have upheld such covenants on two grounds. One being to protect the employer's confidential information and the second being to protect customer connections. In this case, two senior traders, Soliman and Hikmet, worked on trading desks for a global energy tech company based in London. They accepted offers of employment with the tech company's principal rival to work in its Dubai office. Their contract required both traders to give 12 months notice of termination and subjected them to post-termination restraints for 12 months. with the possibility of the restraint period being reduced by any time they spent on garden leave, immediately prior to the termination of their employment. In November 2023, Soliman resigned, giving the requisite 12 months contractual notice. He met with the employer's CEO to inform him of his resignation, saying he needed some personal time and a change. Following that meeting, the CEO requested that Soliman work his notice period in a different role. performing a different set of tasks which were described as interesting work. The CEO wrote to Soliman to remind him of his contractual and fiduciary duties and to set a date to discuss the next 12 months' work. Soliman described these tasks as mundane and said that he did not have the skill set or experience to perform them. He subsequently took an extended period of sick leave due to a flare-up of an existing chronic condition, which was exacerbated by stress. In February 2024, Hikmet resigned from his position, also with the requisite 12 months notice. The tech company informed him that for at least the next six months he was to continue working on his current trading desk in his current role and that he was required to be in the office as normal. Hikmet was also signed off sick by a doctor due to stress and anxiety. The tech company informed both traders that they were not on garden leave and requested that they attend an occupational health assessment. to consider whether there were any adjustments which could be made to facilitate a return to work. Although refusing to engage with occupational health, both took a number of holidays and attended social events while on sick leave. In July 2024, the employer terminated their employment, paid them in lieu of their unexpired notice, and brought injunctive relief proceedings against both employees to enforce the post-termination covenants, alleging that their sickness absences were not authentic. and instead were an attempt to avoid working their notice periods. Before the High Court, both traders submitted that there were no legitimate business interests to protect by way of the post-termination covenants, which were too widely drafted in scope and duration, and were therefore not enforceable, or, alternatively, should the court find the covenants to be enforceable, it should refuse injunctive relief because both traders had been absent from work and out of the market. so the tech company had effectively already benefited from their absence away from the business. The court found that the 12-month non-compete covenant was reasonable to protect the company's confidential information, specifically information about its trading functionalities and systems, positions held by particular desks, information about pricing ratios or formulas for the desks, the layout of the pricing sheet, and information about rebates from brokers or intermediaries. However, The court did not consider that the 12-month duration of the other post-termination covenants, those requiring non-solicitation, non-dealing and non-poaching, was reasonable. It found these to be unreasonably long and not necessary for protecting the company's trading connections or for recruiting and training relevant personnel, and so they could not be enforced. Having found that the non-compete covenants were on their face reasonable, the court went on to consider whether the company could enforce them against the two traders. In respect of Solomon, the court found that the company had already benefited from the protection against competition for more than 12 months while he had been on sick leave. It found that Soliman had been genuinely sick and unable to work, and that during this period he had not had access to or use of the company's confidential information, and that there was no direct or inferred evidence that he had engaged in any unlawful competitive activity during his notice period. In respect of Hikmet, the court found the situation to be very different and granted an injunction to enforce his non-compete covenants for the entire 12-month period. He was also restrained from taking up employment with the competing company for a further month. It found that he was not genuinely sick and unable to work at all in the period following his resignation and up until the termination of his employment in July 2024 and that he had breached his contract, in particular the duty of fidelity, by meeting with a number of brokers during the course of his notice period. He had deliberately refused to attend work in breach of his contract. He had conducted preparatory work for his new employer during his notice period and had disclosed confidential information to his new employer during this period. He had also failed to inform his current employer of his wrongdoing. This decision is useful as it highlights that a court may take into account a period of lawful absence away from a business such as genuine sick leave prior to the termination of employment when considering whether a former employer has been adequately protected in order to help it determine whether or not to provide injunctive relief to enforce an individual's post-termination covenants. Look out for further episodes in this series to stay up to date on all things HR and employment law related.