[picappgallerysingle id="7776916" align="left"]Many employers are worried about employees leaving to work for a competitor and therefore seek to impose restrictions on what the employee can do after termination of employment. These post-termination covenants are clearly in restraint of trade and therefore contrary to public policy. However, they are permitted if they can be shown to be reasonably necessary to protect legitimate business interests. The protection should be no more than is necessary so restrictions which are too wide in area or too long in duration cannot be enforced. Consequently, there is a balancing act required in order to achieve effective restrictions.

In Phoenix Partners Group LLP -v- Maurice Asoyag (21 April 2010) the High Court was asked to consider whether restrictions for a period of six months should be enforced. Mr Asoyag began working for Phoenix in July 2009. He had previously worked for other financial institutions including Merrill Lynch, Nomura and Credit Suisse. His job with Phoenix included brokering equity derivatives related to various indices including in particular the FTSE, EuroStoxx and DAX as well as cash equities derivatives.

On 8 December 2009 he handed in his notice and was placed on three months’ garden leave (pursuant to his contract of employment) so the practical date of termination of employment was 7 March 2010. Mr Asoyag had been offered employment with GFI Holdings Limited with his employment scheduled to commence on 8 March. He asked to be released from his restrictive covenants but was refused and he nonetheless started working for GFI on 8 March. On 9 March solicitors acting for Phoenix wrote to Mr Asoyag and asked him to provide undertakings to observe the restrictions. He refused. On 25 March Phoenix applied for an injunction.

The restrictions in this case are in a very standard form:

12.1 The Employee acknowledges that during the course of his employment with the Company, he will receive and have access to Confidential Information and accordingly he is willing to enter into the covenants set out in this Clause 12 in order to provide the Company and any Group Companies with what he considers to be reasonable protection for those interests.
12.2 The Employee shall not, in any Capacity, save in respect of a Permitted Interest or with the prior written consent of the Members (which shall not be unreasonably withheld), for a period of six months (subject to Clause 12.6) from the Termination Date within the Restricted Area carry on or be concerned or engaged or interested in any part of a trade or business which competes with any part of any trade or business carried on by the Company in which the Employee shall have been actively engaged or involved at any time during the Period…
12.3 The Employee shall not in any Capacity for a period of six months from the Termination Date (subject to Clause 12.6) in competition with the Company or any Group Company and in relation to the business activities of the Company in which the Employee has been engaged or involved during the Period:

• (a) solicit approach or offer goods or services to or entice away from the Company any person, firm or company who was either
  • (i) a client or customer of the Company during the Period with whom the Employee has been actively engaged or involved by virtue of his duties under this agreement during the Period; or
  • (ii) a prospective client or customer of the Company with whom or which as at the Termination Date there are negotiations ongoing with a view to him or it becoming a customer or client of the Company or any other Group Company and where the Employee has been actively engaged or involved in such negotiations in the performance of his duties under this agreement;
• (b) deal with or accept custom from any person, firm or company who was either
  • (i) a client or customer of the Company during the Period with whom the Employee has been actively engaged or involved by virtue of his duties under this agreement during the Period; or
  • (ii) a prospective client or customer of the Company with whom or which as at the Termination Date there are negotiations ongoing with a view to him or it becoming a customer or client of the Company or any Group Company and where the Employee has been actively engaged or involved in such negotiations in the performance of his duties under this agreement …

The High Court Judge noted that normally, with such an application, there would be no need to do more than show that there was a serious issue to be tried in relation to the breach and the issue of enforceability. However, the period of restriction being sought in this case was less than three months so that there was no real prospect of a trial taking place before the expiry of the restrictions. It was therefore necessary to consider whether injunctive relief would be granted at trial. In this context the period of garden leave was significant because it meant that Mr Asoyag had not been “actively engaged or involved” with protected activities in those three months and it is clear from the judgment that the period of the restriction had to be reduced by the period of garden leave, hence the resulting period of less than three months.

There was significant doubt about whether Mr Asoyag’s activities working for GFI would compete with Phoenix in specific markets in the relatively short remaining period. Accordingly the application for injunctive relief was refused.

The decision is a useful reminder that restrictions will not be enforceable unless they can be shown to be necessary. It is also important to consider the potential overlap between the protections sought through garden leave provisions and post-termination covenants. At first glance, most people would have regarded the restrictions in this case as reasonable in terms of area and duration but it does not follow that relief will be granted.