The higher one’s position in a company, the more likely that the employee will, on recruitment, be required to sign a Contract of Employment with a Restrictive Covenant. The Restrictive Covenant will normally seek to impose restrictions on the employee, on the termination of their Employment Contract, restricting the ability of the employee to work for a competitor within a certain area and generally for a period of anything from between 6 and 12 months after termination.
Generally the Courts will rule that the Restrictive Covenant can be enforceable if it is reasonable in terms of time, subject matter and space and not contrary to public policy.
Ryanair -v- Bellew [2020] IEHC 26
This is the most substantive recent case dealing with the enforceability of Restrictive Covenants which was determined in the last few years. The case was heard by Mr. Justice Allan and concerned the Restrictive Covenant imposed on Mr. Bellew, who was employed as a Chief Operations Officer with Ryanair Limited. In summary, the Restrictive Covenant sought to restrict Mr. Bellew in working in any manner for any company which competed with Ryanair for a minimum of 12 months after the date of his departure from Ryanair.
While Allan J. was of the view that Ryanair had a legitimate interest in protecting valuable and sensitive confidential information and that Mr. Bellew had access to such information, stating also that the constraint of 12 months was not excessive in the circumstances of that case, he did rule ultimately that the Restrictive Covenant was void and unenforceable as it sought to restrict Mr. Bellew in working for any competitor “in any capacity”. Accordingly, he felt that the restriction was too wide.
Interestingly, while Mr. Bellew was successful in defending the Injunction Claim taken by Ryanair, he did not recover all of his legal costs against Ryanair.
Interlocutory Injunction
The case of Creganna Limited -v- Niall Cullen and Lake Region Medical Limited [2024] IEHC 231 is an example of a more recent Interlocutory Application taken by an employer against its former employee and the new employer, where Creganna Limited sought to rely on its Restrictive Covenant to prevent Mr. Cullen from joining a competitor in the same industry, Lake Region Medical Limited.
In the normal course the employer will in the first instance, by way of an Interlocutory Application, apply for an Order from the Court granting an Injunction against the employee seeking to prevent that employee working for the new employer pending the full Hearing of the Action.
When the Interlocutory Application came on for hearing before Mr. Justice Oisín Quinn, in delivering his Judgment on the 23rd April 2024, Quinn J. directed that there was a serious issue to be tried and accordingly adjourned the matter for a full hearing.
Where the parties did request the Judge, at the Interlocutory stage, to make a definite and final Decision on the validity of the Restrictive Covenant, the Judge declined to do so, based on previous case law, stating that such adjudication required a full consideration of the disputed facts and legal issues.
The Plaintiff’s Undertaking
In submitting its Application for an Interlocutory Injunction, the plaintiff employer was required in the first instance to undertake to the Court to compensate the defendant employee in the event that ultimately the Court found that the Injunction should not have been granted. In this instance, in adjourning the matter for hearing, the Judge noted that the plaintiff employer had offered, and would be required to undertake, to continue to pay to the employee his salary until the conclusion of the trial of the action, in order to preserve the status quo.
The matter was accordingly adjourned for hearing until the trial of the action, with the Judge issuing directions to the parties as to the exchange of Pleadings and in relation to discovery of relevant documents.
Matters to be considered in Restrictive Covenant Cases
Employers need to be very conscious of the fact that, where restrictions inserted in a Restrictive Covenant are wider than necessary to protect identified legitimate interests, the likelihood is that a Court will strike out the Restrictive Covenant as being void and unenforceable. This therefore is a very expensive gamble to be taken by any Employer when considering whether they are going to seek an Injunction to prevent a valued employee leaving the company to go to work for a competitor.
On the other hand, any employee working under such a Restrictive Covenant also takes a very expensive gamble when an offer is received from a competitor company. While the Court may rule, at Interlocutory stage, that the plaintiff employer should pay the wages of the employee pending the full Hearing, there is no guarantee that the competitor company will wait until the Hearing and the Decision of the Court.
Many of these cases which come before the High Court occur in circumstances where the employee serves written notice of their resignation on the employer. Surely there are cases where some discussions might take place between employee and employer in consultation with the new competitor where agreement could be reached on the circumstances of the new Contract of Employment where the first employer could be guaranteed that the employee would not move into a competitive position with the new employer within the first year?
The aim should be to prevent an expensive legal Hearing.
Legal advice should be taken by the employee before the Resignation Letter; not after.!
For further information, please contact:
Brian Morgan
Morgan McManus Solicitors
Web: www.morganmcmanus.com
Email: bmorgan@morganmcmanus.ie
Ph. No.: 00353 47 51011
Have you read our Employee Guide – “7 Immediate Steps to take if you are involved in a Workplace Dispute?” – Employee-Guide-7-Immediate-Steps-to-take-if-you-are-involved-in-a-Workplace-Dispute.pdf (morganmcmanus.com)