Restrictive Covenants - Affinity Workforce Solutions Ltd v McCann and others
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| Manchester Civil Justice Centre |
Jane Lambert
Business and Property Courts, Manchester (Mr Justice Snowdon, Vice-Chancellor of the County Palatine of Manchester) Affinity Workforce Solutions Ltd v McCann and others [2019] EWHC 2829 (Ch)
I cut my teeth doing cases like this when Andrew Blackett-Ord was the Vice-Chancellor of the County Palatine of Manchester and his deputies were James Fitzhugh and Michale O'Donoghue. They used to tour the North of England and on motion days their courts were packed. My opponents included Northern Circuit legends like Bertie Maddocks and Nigel Howarth who also became circuit judges sitting in the High Court. I learned a lot from doing this sort of work.
This was an application by Affinity Workforce Solutions Ltd ("Affinity") for interim injunctions to restrain five of its former employees from taking any part in the business of the sixth defendant, Tradewind Recruitment Ltd ("Tradewind") until after the expiry of certain covenants in their contracts of employment with Affinity. The employees left Affinity between 17 May and 2 July 2019 so the restrictions were due to expire between 17 Nov 2019 and 2 Jan 2020.
Affinity and Tradewind are recruitment agencies that specialize in placing staff with schools. Each of those agencies acts for schools looking for staff and individuals looking for work with schools or thinking of changing jobs. The former employees worked in a capacity in which they came into contact with both schools and job seekers on Affinity's behalf. Through that work, they got to know Affinity's connections well. They learned about schools' needs and job seekers' qualifications and experience. When a vacancy occurred they would know just the sort of candidates who could fill it. Accordingly, they sent to the school candidates who were most likely to be appointed.
Neither the schools nor the job seekers necessarily deal with one recruitment agency to the exclusion of all others but they consulted those who had served them well in the past before they approached others. Being the first port of call is therefore very important for the agency that is consulted first is usually the agency that gets the work. The restrictive covenant in the contracts of employment of each of the first five defendants was intended to preserve that first port of call advantage.
The first defendant had been Affinity's northwest regional director and the line manager for the other defendants. She was accused of taking unauthorized paid holidays and dismissed for gross misconduct on 17 May 2019. She is also accused of transferring to her personal email address documents and information that could be useful to a competitor but of no proper use to her. She denied any wrongdoing and has issued proceedings for unfair dismissal. Part of her defence to the claim against her is that Affinity repudiated her contract of employment by wrongfully dismissing her with the result that she is no longer bound by the restrictive covenant. She joined Tradewind on 20 June 2019 and has been followed by eight other former employees of Affinity.
Between 12 July and 26 Sept, there was lengthy correspondence between solicitors acting for Affinity and the former employees. On 12 Aug. 2019, the solicitors for the former employees offered a set of undertakings that appeared to be acceptable to the claimant. On 26 Sept 2019 Affinity issued proceedings out of the Manchester District Registry alleging breach of contract, breach of confidence and other causes of action. It also sought interim injunctions in the terms of the restraints imposed by covenants that were said to form part of the employees' contracts of employment.
Affinity's application for interim injunctions came on before Mr Justice Snowdon, Vice-Chancellor of the County Palatine of Lancaster in Liverpool on 9 Oct 2019 and he delivered judgment on 24 Oct 2019. At paragraph [66] of his judgment in Affinity Workforce Solutions Ltd v McCann and others [2019] EWHC 2829 (Ch), he refused the application for interim injunctions and accepted the undertakings that had previously been offered by the former employees.
In reaching his decision, the learned Vice-Chancellor reminded himself of the decisions of the House of Lords in American Cyanamid Co (No 1) v Ethicon Ltd, [1975] 1 All ER 504, [1975] UKHL 1, [1975] 2 WLR 316, [1975] AC 396, [1977] FSR 593 and the Court of Appeal in Lansing Linde v Kerr [1991] 1 WLR 251, [1991] IRLR 80, Forse and others v Secarma Ltd and others [2019] EWCA Civ 215 and Dyson Technology Ltd v Pellerey [2016] CP Rep 21, [2016] WLR(D) 76, [2016] IRLR 355, [2016] ICR 688, [2016] EWCA Civ 87. He instructed himself that:
"whilst the grant of an injunction to enforce an employee's negative covenant after a trial is a discretionary remedy, the starting point for the court is that the ordinary remedy to enforce such a covenant is to grant an injunction and thereby hold the employee to their contractual bargain. The burden of showing why it would be unjust or inappropriate to grant such an injunction lies on the employee: see Dyson Technology v Pellerey [2016] EWCA Civ 87 ("Dyson") at [74]-[75]."
Relying on Dyson he noted at [24] that a case does not have to qualify as "exceptional" before an injunction might be refused and then considered some of the circumstances in which a refusal could be justified.
Noting that several of the defendants disputed whether they were subject to restrictive covenants at all the Vice-Chancellor concluded that there was nevertheless a serious issue to be tried which cleared the first hurdle of Cyanamid. Having said that, he noted at [41] "the case against the First and Third Defendants is subject to substantial problems, and the case against the Second and Fourth Defendants is not straightforward."
Turning to the second and third of Lord Diplock's questions in Cyanamid, his lordship did not consider that damages would be an adequate remedy for either side.
Considering finally the balance of convenience, the Vice-Chancellor reminded himself that the Court of Appeal had said in FSS Travel & Leisure Systems Ltd Johnston and another [1999] ITCLR 218, [1998] IRLR 382, [1999] FSR 505, [1997] EWCA Civ 2759 that as a general principle "an employer cannot take a covenant simply to protect himself against competition by a former employee. The employer's claim for protection must be based upon the identification of some advantage or asset, inherent in the business, which can properly be regarded as the employer's property, which it would be unjust to allow the employee to appropriate for his own purposes, even though the employee may have contributed to its creation. In that regard, protection can legitimately be claimed for identifiable knowledge constituting the employer's trade secrets, but not for the skill, experience, know-how and general knowledge of the employee."
There was no dispute that the former employees' relationship with schools and job seekers and their knowledge of the schools' needs and the job seekers' qualifications and experience could be protected by enforceable restrictive covenants, but there were good reasons why a court should not injunct the defendants in this case. First, Affinity had been aware for some time that the defendants had gone to work for Tradewind but they did not seek to enforce the covenants until after some time afterwards. Secondly, Affinity had been prepared to accept the employees' undertakings up to 26 Sept 2019. It seemed to the Vice-Chancellor that those undertakings would have been sufficient to protect Affiinity's legitimate business interests. Thirdly, the employees would suffer undue hardship were they obliged to stop working for Tradewind for the duration of the restraints. It followed that the balance of convenience lay against granting the injunctions.
It is respectfully submitted that the carefully reasoned judgment of the Vice-Chancellor is clearly right. Had the application come in front of some of his robust predecessors, the delay between the resignation of the employees and the issue of proceedings alone would have been enough to put paid to an application like this.
Anyone wishing to discuss this case note or restrictive covenants in employment contracts generally should call me on 020 7404 5252 during office hours or send me a message through my contact form.
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