Transcription

• Speaker #0

  Today in the Lefebvre HR and Employment Law podcast, we're discussing the High Court judgment in the case of Kau Media Group Limited and Hart, in which the court was asked to determine the enforceability of two non-compete and non-dealing covenants against a former employee of an agency who had resigned to go and work in-house for one of the agency's clients for whom the employee had worked for a number of years and which then terminated its contract with the agency. In this case, an account director for a digital marketing agency, resigned to join MML, a media subsidiary of MNL, a UK-wide network of dentists and orthodontists which had been a long-standing client of the agency and which generated significant revenue for it. MNL subsequently terminated its contract with the agency and effectively brought its marketing services in-house to the media subsidiary. The account director's employer sought an injunction to enforce non-compete and non-dealing covenants. in the account director's contract to prevent him from taking up his new role at MML, claiming that M&L had effectively become a direct competitor of the agency. It argued that the account director would be able to provide his new employer with significant marketing industry knowledge, taken from the agency's processes and systems, and would provide it with an accelerated market position that no one but the account director could provide. The account director disputed that his new employment put him in breach of the restrictive covenants, since his employment with MML was not in competition with the agency and would not involve him competing for the work of clients for whom he was responsible while he was employed by the agency. In particular, the account director argued that MNL had effectively brought its digital marketing function in-house and was therefore no longer in the marketplace, and that MML, in providing digital marketing services to its associated company within the same group of companies. was of a different kind to the services provided by the agency. The account director further argued that the post-termination covenants were not enforceable because the agency had not demonstrated any legitimate business interest which required protection and the covenants went wider than was reasonably necessary to protect any legitimate interest that the agency might seek to demonstrate. The account director asserted that there was nothing unique or confidential about the way in which the agency provided services to clients. and that MML wanted to employ him because of his knowledge of M&L's business, rather than his knowledge of how his former employer operated. The High Court refused to grant an injunction and dismissed the employer's claim, holding that MML was not in direct competition with the employer. The High Court found that while the services provided were ostensibly identical in kind to those formerly provided by the agency to M&L, in fact the two companies did not compete in the same area. Since M&L had brought its marketing activities in-house and left the marketplace, no third-party digital marketing provider could in reality compete for that business. In addition, M&L was focused on providing digital marketing services to small dental practices as part of its network, whereas small practice work did not form a core part of the agency's dental sector business. Further, the employer had not established a legitimate business interest requiring protection. The High Court rejected the idea that the agency had a legitimate proprietary interest to protect in confidential information, since any objective knowledge acquired by the account director about M&L was already possessed by M&L itself. With regard to the post-termination restrictions, they were found to be so wide as to be unreasonable and unenforceable in any event. The six-month non-compete clause was drafted too widely, with no limitations to a specific sector or geographical spread. and was framed in general ways to cover any business in competition with the agency. The court found that this was unreasonably wide, especially considering that the employer later conceded that it would only seek to enforce the covenant against the account director if he was seeking to work in a small rather than large marketing company, and in relation to the dental sector, indicating the true intentions of the parties, and in contrast to the written provision in the restrictive covenant. The restrictive covenants were not proportionate to the account director's salary of £38,000 plus benefits package. In the light of the industry's fluid job market, a 12-month non-dealing clause was excessive and disproportionate when measured against that salary. Look out for further episodes in this series to stay up to date on all things HR and employment law related.