Court lifts injunction preventing employee working at new firm
The High Court has lifted an interim injunction restraining an employee from working at another company.
The case involved Peltrade Ltd, a distributor of energy-producing wood pellets. In March 2018 it had employed Mr Dean Scanlan to trade in premium and industrial quality pellets, but he had worked primarily in the premium pellet sector.
His contract of employment contained several post-termination restrictive covenants restraining him from working for any competitive business in the biomass fuel industry for 12 months after leaving Peltrade.
In August 2019, Scanlan indicated his intention to leave and join a competitor. His case was that he had spoken about that to one of Peltrade’s directors, who had told him that the restrictive covenants would not be enforced.
Peltrade's case was that Scanlan had told the director that his new role with the competitor would be with industrial pellets sector, and that the covenants would not be enforced in respect of his work in that sector.
Scanlan left at the end of 2019 and began working for the competitor in 2020 in the premium pellet sector. He maintained that was done with Peltrade’s knowledge, since he and its director had exchanged several messages on WhatsApp about that work.
In August 2020, Peltrade successfully applied for a without notice injunction complaining that Scanlan was in breach of the covenants in the contract of employment and seeking to enforce them, effectively ending his employment with the competitor.
In its application, Peltrade did not refer to any variation in the terms of the covenants or to the WhatsApp messages.
Scanlan contended that the injunction should be discharged.
The High Court found in his favour. It held that it was relevant that the restrictive covenants, even if effective, would only have effect until the end the year, and would therefore expire before any substantive trial or judgment.
There was clearly a triable issue as to whether and how the restrictive covenants had been varied and whether Peltrade was in breach of them. Damages would not be an adequate remedy for either party. In respect of the balance of convenience, Peltrade’s delay was fatal to its application.
Scanlan had openly traded in the premium pellet market from at least March 2020 with Peltrade’s knowledge, as demonstrated by the WhatsApp messages. That trading had therefore become the status quo, and it would be unfair to force Scanlan into unemployment.
Peltrade had taken no action until August 2020, and there was no satisfactory explanation for that delay. Scanlan was likely to succeed at trial on his case that he had been completely released from the covenants, particularly given his open exchanges in the WhatsApp messages.
Peltrade was unlikely to be able to establish that the covenants were enforceable. A 12-month term of restraint in the UK pellet market was unreasonable, and the purpose of a term of that length was simply to protect Peltrade from competitors. On the balance of convenience, it was necessary to discharge the injunction.
Please contact Jackie Cuneen if you would like more information about the issues raised in this article or any aspect of employment law.