Decorus Ltd v Penfold & Anor

An employee’s duty of fidelity prohibits using confidential employer information to prepare a competing business while employment continues. Post-termination restraints are enforceable only where they protect a legitimate interest and go no further than reasonably necessary. The court should construe the covenant, identify the legitimate interest requiring protection, and assess necessity in the contractual and factual context. A non-solicitation covenant protecting strong client connections and confidential purchasing information may be enforceable. A much wider prohibition on working in an entire industry may be severed where the offending restraint can be removed without rewriting the contract. Customer contact details, purchasing patterns, pricing and renewal information may also attract an equitable duty of confidence.

Decorus Limited employed Daniel Penfold as a sales account manager and later as a corporate account manager. His work involved close relationships with customers and access to confidential customer, pricing, purchasing and renewal information. His 2013 employment contract contained post-termination restrictions and confidentiality obligations.

Mr Penfold resigned in January 2016 and left employment on 8 February 2016. He established Procure Store Limited and communicated with Decorus customers before and after departure. Decorus alleged breaches of the implied duty of fidelity, confidence and the express restrictive covenants. The court determined which contract governed, whether the covenants were enforceable, and whether the defendants had misused confidential information.

1. Contract and consideration. The 2013 Contract governed Mr Penfold’s employment. The appraisal, increased salary and continuation of employment together supplied valid consideration for the new contractual terms.
2. Duty of fidelity. An employee must serve the employer faithfully. Accessing confidential purchase logs to assess the profitability and prospects of a competing business breached that duty, even though Mr Penfold did not copy or retain the information. Processing customer orders through Procure Store while still employed also constituted a breach. Communications with Lush before departure, together with the immediate post-termination dealings, evidenced a pre-existing arrangement to compete with Decorus.
3. Restrictive covenants. Applying the three-stage approach in TFS Derivatives v Morgan [2005] IRLR 246, the court construed the non-solicitation covenant, identified Decorus’s legitimate interest in customer connections and confidential information, and assessed whether the restraint was reasonably necessary. The covenant relating to customers and prospective customers with whom Mr Penfold had material dealings was enforceable. The non-dealing covenant was also enforceable because of the strong client connections and specialised market.
4. The prohibition on employment with any competitor in any industry in which Mr Penfold had operated was substantially wider than necessary. It could be severed by removing that provision, leaving the remaining enforceable covenants in place. The court applied the caution concerning severance stated in JA Mont (UK) Ltd v Mills.
5. Confidence. Customer contact details, purchasing patterns, prices, profits and likely future requirements had the necessary quality of confidence and were imparted in circumstances importing an obligation of confidence. Their use to compete with Decorus breached the equitable duty of confidence, which extended to Procure Store insofar as it misused information supplied by Mr Penfold.
6. Decorus was awarded damages of £29,852.17 and final injunctive relief in the specified terms. Costs were to be assessed if not agreed.

First-instance judgment. No appellate history is stated in the judgment.