Employers, particularly in the recruitment sector, can take comfort from the firm decision of the High Court in East England Schools CIC (trading as 4myschools) v Palmer and anor [2013 EWHC 4138 (QB). Employment lawyers with time (and twitter) on their hands have for some while speculated on the potential impact of social media on the enforceability of certain restrictive covenants – if recruitment information is splashed all over the internet, is there still a legitimate interest for the employer to protect?
Yes, said the High Court. Here, Ms Palmer had been a recruitment consultant for 4myschools, employed to connect schools with teaching applicants in Essex. Her contract contained a six-month restriction after termination of her employment, precluding her from soliciting or dealing with candidates or schools with whom she had worked in the 12 months prior to termination. She left 4myschools to join a rival, Sugarman Education. Very soon thereafter, 4myschools suspected she might be in breach of covenant and sought undertakings. However, the suspicions persisted and 4myschools took their concerns to court, seeking damages for breach of covenant.
The judgment of the High Court restates the principles for construction and enforceability of restrictive covenants as snappily as one can realistically hope for, given the complexity of the case law in this area. It looked at whether 4myschools had a legitimate proprietary interest to protect and if so, whether the restrictions in Ms Palmer’s contract were reasonable. It then had to decide whether she had acted in breach of those covenants (and whether Sugarman had induced a breach).
In relation to the first question, 4myschools said, unsurprisingly, that the interest they were seeking to protect was their trade connections with client schools and with candidates. They argued that Ms Palmer had close relationships with them which she could use to the benefit of Sugarman. Sugarman denied this, saying that in general neither schools nor teachers had a loyalty to a particular agency – everything was dictated by job availability, rather than the identity of the agency itself (most schools and most individuals are in any event registered with several agencies at any one time). They majored on the fact that all relevant information was in the public domain in any event, given the use of social media in recruitment, and hence there could be no question of confidentiality to any particular agency. They also questioned the drafting and scope of the restrictions.
The High Court disagreed. It concluded that whilst schools and teachers may not feel any paramount loyalty to any particular consultant or agency, 4myschools did still have a sufficient proprietary interest in the connections made by Ms Palmer as to make protection of that interest justifiable. It accepted that the market was candidate-driven and that the vast majority of the relevant information about schools and posts was widely available via social media. It also agreed that schools and candidates registered with many different agencies. But it found that being the first agency with which a client registered was an important asset to that agency, and that it was often because of personal connections with the individual agent that an agency could get in first. Given that Ms Palmer had built up relationships with schools and with teachers, she did have scope to influence their ‘first’ choice of agency. In many ways, it was precisely because of the fragility and the absence of customer loyalty that employers ought to be able to rely on legitimate protection via restrictive covenants. The fact that much of the information was in any event openly available on the internet did not undermine 4myschool’s proprietary interest.
The case also offers some useful reminders on points of construction (particularly the ‘blue-pencilling’ of the prohibition on Ms Palmer competing post-termination ‘in any capacity’. This was found to be too wide, since it meant she would be in breach merely by being a minority shareholder of her new employer, irrespective of whether she performed any work for them).
Overall, the judgment offers a common-sense reiteration of the broad principles of the law in this area. Employers can take some comfort from its conclusions, not least the court’s affirmation that in areas where client loyalty may be questionable, it is all the more vital that employers can rely on protection of their interests. Whether the £7,040 damages awarded were worth the effort may be more doubtful: one presumes that the point of principle outweighed the financial remedy as far as the employer was concerned.