Although it’s rare for them to do so, restrictive covenants can bite…29th September 2022 • 2 min read • Chris McAvoy
The typical advice often given to individuals concerned about the impact of restrictive covenants is, even if they are enforceable, the chances of the employer seeking to enforce them is relatively slim. Often, employers don’t include restrictive covenants with enforcement in mind, only deterrent.
There are obviously exceptions to such typical advice and the recent case involving a dispute between two pharmaceutical giants, AstraZeneca (AZ) and GSK, illustrates the importance of being mindful of such exceptions.
Post-termination restrictions are commonly found in contracts of employment and seek to protect an employer’s confidential information and connections by preventing employees from either working in competition and/or soliciting customers, clients, suppliers etc. for a defined period of time after termination of employment.
Where a former employee is in breach of a restriction, the former employer can apply to the Court for an interim solution such as an injunction (as well as seeking damages for breach of contract). An injunction is a Court order preventing the former employee from acting in competition or soliciting etc.
AZ v GSK
AZ’s former Vice President of Investor Relations, Chris Sheldon, secured a new role with GSK as Senior Vice President of GSK’s Commercial Portfolio. However, Mr Sheldon’s AZ contract of employment contained a non-compete restriction, seeking to prevent Mr Sheldon from taking up a role with a competitor of AZ (such as GSK) for a period of six months.
AZ could have simply sought damages for breach of the restrictive covenant. However, this would have been more complicated – the legal test is stricter and there would be a need for AZ to show loss.
The strategy they decided to adopt, namely, to incur the time and cost associated with seeking an injunction, had far more teeth. Not only is the legal test for an injunction easier to meet, but, if granted, immediate action protecting the employer’s business can be taken. After the injunction was granted, Mr Sheldon was not permitted to continue working for GSK during the restricted period set out in the covenant.
The takeaway from this case
For employers, this case highlights the importance of ensuring that post-termination restrictions are well-drafted, assuming the employer wishes to potentially enforce them in the future. It also highlights the importance of considering your options carefully if a former employee is in breach and you feel strongly about it. For employees, the case highlights the limitations with the above mentioned ‘typical advice’. Sometimes it’s worth a more detailed consultation with an adviser before taking a decision similar to that taken by Mr Sheldon.
If you would like further advice on restrictive covenants, call us on 0800 368 8470 or arrange a chat at www.people.legal/contact. We offer free initial advice.
Please note the information contained in this blog is intended as a general review of the subject featured and is not a substitute for obtaining specific legal advice.