Planon Limited v Gilligan

On an application for an interim injunction enforcing an employee’s non-compete covenant, the court should ask whether there is a serious issue to be tried and then consider the adequacy of damages and the balance of convenience. Any assessment of enforceability at that stage is preliminary, not definitive.

The covenant’s validity depends on its meaning, the employer’s legitimate business interests and whether the restraint goes no further than reasonably necessary to protect them. The likely effect on the employee’s ability to work is not, by itself, the criterion of validity. It may, however, be important when assessing adequacy of damages and the balance of convenience. Delay, the time already spent in the new employment and the remaining duration of the restraint may make an injunction inappropriate.

The claimant employer sought an interim injunction enforcing a 12-month non-compete covenant against a former sales manager who had joined a business alleged to compete in the facilities-management software market. The employer also sought disclosure of the employee’s new contract and job description.

Edwin Johnson J refused to enforce the non-compete covenant. He considered that it could prevent the employee from working in his established market and might lead to unemployment. He also declined to order immediate disclosure of the new employment contract, while permitting a renewed application.

The employer appealed. The central questions were whether the judge had applied the correct approach to the covenant’s enforceability and whether the Court of Appeal should grant an injunction in light of the elapsed restraint period, the adequacy of damages, delay and the balance of convenience.

1. Appeal dismissed unanimously. Elisabeth Laing LJ held that the judge’s assessment of enforceability could not stand, but the Court of Appeal upheld his refusal to enforce the covenant for different reasons. Nugee and Bean LJJ agreed that the balance of convenience firmly opposed an injunction by the date of the appeal: [2022] EWCA Civ 642, paras 100–101, 106 and 115.

2. The correct inquiry into a post-termination restraint is to determine its meaning, identify the employer’s legitimate business interests and ask whether it goes no further than reasonably necessary to protect them. The judge had referred generally to reasonableness and width, but had not shown that he applied those criteria. He had instead treated the likely impact upon the employee’s employment prospects as the principal consideration against enforceability. That was an error of approach: paras 83–91.

3. Nugee LJ explained that the first stage under American Cyanamid is only whether there is a serious issue to be tried. The threshold excludes frivolous, vexatious or demonstrably bad claims. Although the court may undertake some assessment of the merits when considering the balance of convenience, that assessment remains preliminary and is only one factor in deciding how best to hold the ring pending trial. Only a trial can establish the covenant’s validity definitively: paras 102–104.

4. Restraining an employee from taking up or continuing employment for many months may cause harm which money cannot adequately compensate if the covenant is later held unenforceable. It was open to the judge to find that damages would not adequately compensate the employee. Bean LJ considered that an injunction would probably deprive the employee of his income unless he found another job: paras 94 and 111.

5. The principle in Doherty v Allman, under which a valid negative covenant will ordinarily be enforced after trial, does not govern an interlocutory application. At that stage validity has not been established and the court must exercise its discretion under the American Cyanamid approach: paras 96 and 105, 112.

6. By the appeal hearing, the employee had worked for the new employer for more than seven months and only about four months of the restraint remained. Much or all of any threatened damage was likely already to have occurred, and the existing employment was then the relevant status quo. The balance of convenience therefore opposed enforcement: para 99. The judge was also entitled to decline immediate disclosure of the new contract while leaving a renewed application open: para 95.

1. Court of Appeal (Civil Division): The appeal was dismissed unanimously. The court rejected the judge’s reasoning on enforceability but upheld the refusal of an interim injunction because the balance of convenience opposed enforcement by the appeal hearing: [2022] EWCA Civ 642.

2. High Court: Edwin Johnson J refused to enforce the 12-month non-compete covenant and declined to order immediate disclosure of the employee’s new contract, while permitting a renewed disclosure application. No citation for that decision is stated in the judgment.