Restrictive Covenants and Implied Duties in Employment Contracts

Following on from our recent blog on the current Department for Business, Energy & Industrial Strategy (BEIS) consultation on the operation of restrictive covenants or non-compete clauses (which can be found here, we take a look at the recent decision in Quilter Private Client Advisers v Falconer [2020] EWHC 3294 (QB) that, whilst highlighting an example of a situation where courts will ultimately deem restrictive covenants unfairly restrictive and unenforceable, also provides a timely reminder that restrictive covenants are not necessarily the “be all and end all”  in ensuring confidentiality obligations owed by a former employee to their ex-employer are respected.

In short, the case revolved around a former employee who had several restrictive covenants inserted into her employment contract.

In their ruling, the High Court determined that the restrictive covenants in question constituted an invalid restraint of trade and were therefore unenforceable.  One of the central issues in the ruling was the fact that the employer had failed to demonstrate to the High Court that the nine month non-competition clause was no wider than was reasonably necessary for the protection of their legitimate business interests.

The High Court took several factors into consideration in reaching their conclusion, including the fact that the non-competition clauses used by the employer were not considered to be “industry standard“, and that the “Head” of the employer (who ultimately had access to far more confidential information than that of the former employee in question) was subject to less onerous covenants than the former employee.

Arguably the most significant take away from the case however, was the determination that the former employee had breached her duty of fidelity, duty of trust and confidence, and also breached an “equitable obligation of confidence” that she owed to the employer.

There was also a finding of breach of express contractual obligations relating to conflicts of interest.  This finding demonstrates the importance of both the implied terms and duties that are owed as part of the employment relationship and other express contractual obligations that may be owed – in addition to, and regardless of, the operation and enforceability of restrictive covenants.

Therefore, whilst each case turns on its own facts and this employee’s actions (such as scanning client information onto her own laptop) were clearly in breach of duties owed to the employer, it does remind us of the potential of successful legal action against former employees even absent enforceable restrictive covenants.

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If you have any questions in relation to the enforceability and operation of restrictive covenants or other contractual clauses, please get in touch with one of our team.