East England Schools CIC (t/a 4MYSCHOOLS) v Palmer & Anor

Post-termination restraints in an employment contract are enforceable only so far as reasonably necessary to protect a legitimate proprietary interest. In a recruitment business, that interest may include personal connections with clients and candidates, together with confidential information about their preferences and requirements, even where much basic information is publicly available and customers commonly use several agencies.

A prohibition against canvassing, soliciting or dealing requires the employee’s positive act. A prohibition against being concerned with the supply of competing services may, however, extend to passive minority shareholding and may therefore be too wide. The offending words may be severed where they can be removed without rewriting the covenant and the remaining contract retains its character.

The claimant operated an educational recruitment agency. The first defendant, formerly employed as a recruitment consultant, joined a competing agency and worked in the same geographical market. Her employment contract contained six-month restrictions concerning clients, prospective clients, candidates and prospective candidates.

After alleged breaches, the defendants gave undertakings to Sharpe J, which expired before trial. The court therefore considered whether an injunction would have been rightly granted, whether the contractual restrictions were enforceable, whether the first defendant had breached them, and whether the second defendant had induced those breaches.

The central issues were whether the claimant had a protectable proprietary interest, whether the restrictions were reasonable in scope, and whether the first defendant’s indirect conduct and the second defendant’s knowledge established liability.

1. The 24 May undertakings did not create an enforceable separate contract. The correspondence showed no concluded agreement. The undertakings were sent to be held to solicitors’ order subject to a condition which was never accepted, and the claimant continued to require undertakings to the court rather than a further contractual promise.

2. The claimant had a legitimate proprietary interest in its connections with schools and candidate teachers. The market was fluid, information about identities and contact details was often publicly available, and schools and candidates commonly used several agencies. Nevertheless, the employee’s relationships, together with confidential information about personalities, preferences and requirements, could influence which agency received the first opportunity to supply services.

3. The six-month duration and the 12-month look-back period were reasonable. The court took account of the time needed to build relationships and the effect of school holidays on the effective trading year.

4. The covenants in sub-clauses 15.2.2 and 15.2.6, prohibiting canvassing or soliciting clients, prospective clients, candidates and prospective candidates, were enforceable. They required a positive act and were not infringed merely by passive minority shareholding.

5. The words prohibiting the employee from being “concerned with” the supply of services in sub-clauses 15.2.3 and 15.2.7 were wider than reasonably necessary. They could catch passive minority shareholding. Those words were severable under the applicable blue-pencil test, leaving enforceable prohibitions against dealing.

6. The first defendant committed numerous direct and indirect breaches. The second defendant knowingly procured those breaches. Its failure deliberately to ascertain the restrictions amounted to blind-eye knowledge, and its instructions had the necessary causal connection with the breaches.

7. The defendants were jointly and severally liable for compensatory damages of £7,040, with interest to be assessed if not agreed. The claim for exemplary damages was not pursued and, in any event, the necessary cynical calculation of profit over loss was not established.

8. An injunction should have been granted against both defendants, but only in respect of the enforceable restrictions. The court made declarations accordingly and reserved costs.