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Restrictive covenants: how can employers protect themselves in the digital age?

In this day of social media with every sneeze being eagerly reported on Facebook we were extremely interested in the High Court’s decision in the case of East England Schools v Palmer looking at the impact of social media on restrictive covenants.

The case focused on restrictive covenants in an educational recruitment consultant’s contract of employment and of particular interest was whether the employer had a legitimate interest to protect when the recruitment information was widely available via social media websites.

The law (in a nutshell)

In order for a contractual term restricting an employee’s activities post-termination of employment to be enforceable the employer must show that:

  • They have a legitimate proprietary interest.
  • The protection sought is reasonable bearing in mind both the interests of the parties and the public interest.

The basic facts of the case are as follows:

  • Ms Palmer was employed as a recruitment consultant for East England Schools (4myschools).
  • Her contract of employment contained restrictions prohibiting her from soliciting or dealing for a period of 6 months after the ending of her employment with the candidate teachers or client schools with whom Ms Palmer had dealt in her last 12 months at 4myschools.
  • Ms Palmer left her employment and went to work for a competitor called Sugarman Education.
  • 4myschools sought to enforce the restrictive covenants.

The key question of interest in this case is:

What proprietary interest can an employer protect when the information is widely available in the public domain via social media?

The High Court made a number of findings of fact including: the market is candidate driven; the number of vacancies exceeds the number of candidates; much of the information about teachers and schools is publicly available; that schools will generally use whichever agency can get them the best candidate at the right price; that candidates will usually sign up with multiple agencies and there is little loyalty.

Despite these findings the High Court went on to find that there was a proprietary interest to protect.  The Court focused on the personal element of the employee’s role, namely building relationships.   It was found that the relationship with the recruitment consultant would often be the deciding factor when all other elements were equal.  The restrictive covenants were therefore held to be enforceable as there was a legitimate proprietary interest to protect.

Comment

Employers who frequently rely on restrictive covenants can breathe a sigh of relief knowing that there can still be a proprietary interest to protect despite much information being publicly available on social media.

This is a valid lesson for recruitment companies as it serves as a reminder that when taking on new employees they are likely to be subject to restrictive covenants from the ex-employer.  Even though we live in an information age where business contact details are more readily available through social media sites such as Facebook and LinkedIn, the time and effort that is put into building the relationship itself can be protected.

Employers should take pre-emptive measures to ensure restrictions and confidentiality provisions are drafted as tightly as possible.  Employers should be mindful that restrictions which are drafted too wide may well be unenforceable.  Employers should also consider confidentiality provisions and ensure they cover ownership of confidential contact information such as that contained on LinkedIn.  The Hays Specialist Recruitment Holdings Limited v Ions case was seen as a ray of light for employers when the employee’s contacts on LinkedIn did not lose the requisite quality of confidence by being posted online.  There can be no guarantees for employers seeking to protect their business, however they should put themselves in the best possible position with well drafted contracts and policies.

The inside track is that many businesses who rely on building relationships to drive their business (for example recruitment businesses) are taking a very assertive approach to enforcing their rights when an employee exits.

 

 

 

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further