High Court Addresses Enforcement of Post-Termination Restraints Against Former Employee in Sparta Global Ltd v Hayes Case

Citation: [2024] EWHC 100 (KB)
Judgment on

Introduction

In the case of Sparta Global Limited & Anor v Ben Hayes & Anor [2024] EWHC 100 (KB), the High Court of Justice addresses the issues surrounding the enforcement of post-termination restraints (PTRs) and interim injunctive relief against a former employee. This case highlights the balance between an employer’s interest in protecting sensitive information and trade secrets versus an employee’s right to earn a living and the enforceability of restrictive covenants in the context of employment law.

Key Facts

Sparta Global Limited sought interim injunctive relief against their former employee, Ben Hayes, who took on employment with a competitor, Kubrick Group Limited. Hayes had signed both an employment contract and an investment agreement (IA) with post-termination restraints during his tenure with Sparta. However, the IA contained broader restrictions than the employment contract, extending the non-compete period from 6 to 12 months and lacking a carve-out for non-competitive roles within a competing organization.

Hayes contended that the undertakings he had offered concerning the employment contract were adequate, while Sparta argued for the more extensive protection under the IA. The court was tasked with determining whether to enforce the IA restrictions on an interim basis until the case could be tried.

The judgment discusses several key legal principles:

  1. Restraint of Trade Doctrine: The court reiterates that PTRs are prima facie void as they restrict competition, emphasizing the longstanding principle that they should be no wider than necessary to protect legitimate business interests (Herbert Morris Ltd v Saxelby [1916]).

  2. Interim Injunctive Relief: In considering interim relief, the court applies the American Cyanamid principles which involve determining if there is a serious question to be tried, adequacy of damages, and where the balance of convenience lies. However, where a trial would not occur before the covenant’s term is substantially expired, making “some assessment” of the merits is warranted (Lansing Linde v Kerr [1991]).

  3. Reasonableness of Restrictive Covenants: The court evaluates whether the restrictions are necessary to protect Sparta’s legitimate business interests, the covenant’s duration, extent, and the seniority of the employee (TFS Derivatives Ltd v Morgan [2005]; Planon v Gilligan [2022] EWCA Civ 642). It also considers the nature and implications of signing the IA, such as evidence of pressure to sign without negotiation, the employee’s equity stake in the company, and the employee’s specific role (Dwyer (UK Franchising) Ltd v Fredbar Ltd [2023]).

  4. Balance of Convenience: This involves a comprehensive evaluation of harm likely to be caused on both sides if the injunction is either granted or not granted. If prospects are evenly balanced, the status quo should prevail (American Cyanamid Co v Ethicon Ltd [1975]). However, this case establishes a clear bias in favor of the employee due to lack of sufficient evidence for heightened protection and risk of harm to the employee’s livelihood and mental health.

Outcomes

The court dismissed the application to enforce IA covenants against Ben Hayes, finding it more likely than not to be declared void as an unreasonable restraint of trade in the final trial due to being akin to an employment contract and having an element of inequality in bargaining power. The IA’s restrictions were described as too broad to be reasonable. The applications to add Condor and Kubrick as second claimant and defendant, respectively, were granted.

Conclusion

The case of Sparta Global Limited & Anor v Ben Hayes & Anor exemplifies the delicate balance that must be struck between the enforcement of restrictive covenants and the recognition of an individual’s right to freely trade their skills in the marketplace. While recognizing the importance of protecting legitimate business interests, the court is equally cognizant of avoiding undue hardship on an employee caused by overly broad and restrictive clauses. This interim judgment serves as a reminder to employers that restraint clauses must be reasonable, well-calibrated, and justifiable to be enforceable—even on an interim basis.

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