When can a business prevent its former employees from soliciting or enticing away its staff? And can it stop them from employing their former colleagues regardless of who made the first approach?
In the third part of our series on restrictive covenants and other forms of business protection, Partner David Fisher looks at the enforceability and scope of what are commonly known as non-poaching restrictions.
Post-termination restrictions to prevent the solicitation of employees are very common, and some businesses will include them in their employment contracts even if they don’t use any other types of restrictive covenant.
In the first part of this series we saw how post-termination restrictions have to protect one or more of the employer’s “legitimate business interests” if they are to be enforceable – merely trying to prevent competition is not permissible. In addition, a covenant must go no further than is reasonably necessary between the parties to protect those interests, so a restriction which is too broad in its scope or which lasts for too long is unlikely to be upheld by the courts.
Are non-poaching restrictions enforceable?
Up to the mid-1990s there were conflicting authorities on whether an employer could enforce a non-poaching restriction against a former employee. This was settled by the Court of Appeal in Dawnay, Day & Co Ltd v de Braconier D’Alphen [1998] ICR 1068, and it is now well established that an employer has a legitimate interest in maintaining a stable, trained workforce. As the Court of Appeal noted, this interest may be damaged if former employees try to exploit the confidential information they have gained during the course of their employment regarding other employees’ qualifications, rates of remuneration and so on. Post-termination covenants to restrain the solicitation of employees are therefore allowed in principle.
Whether a particular restriction can be justified and will be upheld by the courts will depend on the case in question. Possible reasons for the restriction being found to be unenforceable include:
- The restriction applies to the solicitation of employees doing any job for the employer, regardless of their experience or importance to the business, rather than being limited to the solicitation of employees in key roles or those who could damage the employer’s interests by leaving. In the Dawnay, Day & Co Ltd case, the restriction was enforceable because it was limited to the solicitation of “any director or senior employee”. A well-drafted restriction will take account of the nature of the employer’s business, define with sufficient clarity the range of employees who come within its scope, and not extend to job roles or positions which don’t reasonably need to be protected.
- The restriction applies to the solicitation of employees who joined the employer after the former employee had left, or whom the former employee otherwise did not know. To increase the likelihood of their being upheld, restrictions are usually expressly limited to the solicitation of employees with whom the former employee had material contact during a specified reasonable period before the end of their employment, although a wider restriction might be justifiable in some circumstances.
- The duration of the restriction is too long. The restriction should last for no longer than is reasonably required to protect the stability of the employer’s workforce, and relevant factors might include the nature of the employer’s business and how competitive the particular industry is, the shelf life of any confidential information that the former employee has regarding the employer’s workforce (such as their individual skills, qualifications or remuneration), how long the former employee’s influence over the remaining employees will continue, and the industry standard for such restrictions.
What amounts to solicitation?
In the second part of this series we looked at the meaning of solicitation in relation to the protection of the employer’s customer connections, and how a former employee could be in breach of their obligation not to solicit clients if there was some form of request, persuasion or encouragement by them to the client, even if the client had initiated the contact.
The case law in that area might be helpful in some situations when determining whether there has been any solicitation of employees, but given the general reluctance of the courts to prevent employees who are not parties to a restriction from working for whichever employer they want to work for if that employer is willing to employ them, it seems likely that they will put a narrower limit on what actions can be prohibited by a non-poaching covenant.
An example of the courts’ approach is the decision of the High Court in Hydra plc v Anastasi and others [2005] EWHC 1559 (QB), where the covenant provided that the former employee would not “solicit or entice away” the company’s employees – a form of wording which is frequently used in non-poaching clauses. The Court found on the evidence that the employee in question (Mr Marsh) had approached the former employee (Mr Anastasi) and had sought to persuade him to let him join Mr Anastasi’s new business venture. As a result, there was no solicitation by Mr Anastasi. The company argued that the scope of the restriction was more extensive, because of the prohibition on “enticing”. It said that even if Mr Marsh had approached Mr Anastasi, by agreeing in principle that Mr Marsh could have a share in the business then Mr Anastasi would be enticing him. The Court decided that entice meant “tempt, lure, persuade and inveigle”, so it did not cover what had happened in this case. The Court said that if it was wrong about the meaning of “entice” then it would be driven to the conclusion that the restraint in the clause would be unreasonably wide and in consequence the clause would be unenforceable.
It therefore seems that a simple communication by a former employee to their ex-colleagues with their new employment details is unlikely to amount to solicitation, unless they are also given some form of encouragement or inducement to leave. The same will apply to a former employee simply updating their profile on sites such as LinkedIn to reflect their new employment or putting out a general advertisement for vacant roles. If an employee approaches the former employee to ask for a job, then it is likely to be difficult for the employer to prove that there has been solicitation or enticement in breach of a non-poaching covenant, even if the employee makes up their mind to leave because of the particular terms they are offered.
Non-employment restrictions
To protect their customer connections, employers will often use non-dealing covenants alongside non-solicitation covenants, so that the former employee can be prevented from doing business with the relevant clients, regardless of how the transaction came about. The courts have held that the practical difficulty of defining and policing solicitation and proving that solicitation has occurred can justify the use of a non-dealing covenant in combination with a non-solicitation covenant in this way.
It might therefore be thought, by analogy, that a covenant which prevents a former employee from employing or engaging the company’s employees can be justified, in combination with one that prohibits their solicitation, and such non-employment restrictions are commonly included in employment terms. However, there are good public policy reasons for allowing employees who are not party to a restriction the freedom to work elsewhere, and in the Dawnay, Day & Co Ltd case the Judge at first instance said that such a restriction “is indefensible in an employment contract” and held it to be unenforceable. The company did not challenge this in the Court of Appeal, and the same conclusion was reached by the High Court in White Digital Media Ltd v Weaver [2013] EWHC 1681 (QB).
If you have any questions arising from this article, or would like to discuss restrictive covenants in more detail, please contact Partner David Fisher, who specialises in employment and partnership law and has a particular interest in restrictive covenants and team moves.
Related Content
If you are interested in team moves, please check out the short video Team Moves: Some Practical Views from David and Managing Partner Clare Murray and also read our Little Book of Partner Exits and Team Moves.
