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How to navigate non-compete clauses as an employer

28 Jan 2020

In light of events between Ryanair and its former COO, William Fry’s employment team discusses best practice around non-compete clauses.

Last year, Ryanair sought to prevent its chief operations officer Peter Bellew from joining EasyJet in an apparent breach of a contractual non-compete clause.

In a cautionary tale for employers, although the court concluded that the nature of the confidential information that Bellew was privy to in his senior role at Ryanair justified a non-compete, the scope of the restraint (which covered all airlines in any capacity) was too wide and, therefore, void.

The details of the case

Bellew was recruited to the role of COO of Ryanair, one of the most senior executive roles in the company, in 2017.

In April 2018, Bellew agreed to a post-termination non-compete clause in consideration for which he could participate in Ryanair’s share option scheme. In brief, he agreed not to be “employed, engaged, concerned or interested in any capacity in any business wholly or partly in competition with [Ryanair] for air passenger services in any market” for 12 months following termination.

After a difficult year for Ryanair in 2018, Bellew received a disappointing performance review. He ultimately resigned on 8 July 2019 before informing Ryanair of his new role with EasyJet on 17 July. The following day, EasyJet announced that Bellew would be joining it as COO on 1 January 2020.

‘Bellew argued that the restraint Ryanair sought to impose was “wholly unnecessary, unreasonable and unwarranted”’

Ryanair then commenced injunctive proceedings in August 2019 seeking to prevent Bellew from commencing employment with EasyJet until the expiry of the 12-month non-compete period.

Ryanair asserted that, as a result of his senior role, Bellew was privy to “confidential material and sensitive commercial and operational information”. It was also claimed that Ryanair would be “exposed to irremediable and unquantifiable loss and damages” if he were to commence employment with EasyJet.

By way of defence, Bellew conceded that his role as COO had given him “insight and involvement into key business strategies, decisions and relationships” and that he had “sensitive protectable information”. However, he submitted that he was “fully aware of his obligations of confidentiality” and intended to honour them.

In addition, Bellew argued that the restraint Ryanair sought to impose was “wholly unnecessary, unreasonable and unwarranted”.

High Court decision

Addressing the crucial issue of the enforceability of the restraint, the High Court relied on Irish and English case law, confirming that any restraint on a person working is “by definition a restraint of trade” and such a restraint is void and unenforceable unless it passes a two-fold test: first, that it is reasonable as between the parties; and second, that it is consistent with the public interest.

The court assessed whether the imposition of the non-compete was “justifiable” to protect Ryanair’s business and ultimately agreed that the “nature and extent of the confidential information that would inevitably come to the knowledge of Mr Bellew in the course of his employment” justified a post-termination restraint.

However, crucially, the court went on to consider whether the restraint went “further than is necessary for the legitimate protection of Ryanair’s interest”.

It will be of some relief to employers that the court concluded that it had no difficulty with the time constraint of 12 months. Rather, the crux of the issue was the scope of the restraint which sought to prohibit employment in any business and in any capacity in competition with Ryanair.

Ryanair sought to differentiate between two “spaces” in the air services market – the “low-cost space and the legacy or flag space” (ie high-cost airlines such as Lufthansa etc). It argued that, while it is in competition with all airlines, the main competition it faced was not from legacy airlines, but from low-cost carriers of which EasyJet was its “most immediate rival”.

However, from the court’s perspective, the restraint, in its plain terms, applied to any business in competition with Ryanair for air services, including the legacy airlines. The court noted that Ryanair’s prior written consent would have been required had Bellew sought to move to a legacy airline, such that the restraint as drafted was “too wide”.

Although the court noted its “considerable reluctance” to do so, it found that the restrictive covenant was too wide and consequently “void and unenforceable as an unjustified restraint of trade”.

What does this mean for employers?

There is a delicate balance to be struck between a reasonable and justifiable restrictive covenant and a restraint designed simply to hobble an employee in the legitimate pursuit of their career.

In an effort to strike this balance, employers should beware of an over-reliance on standard, boilerplate restrictive covenants that have not been tightly tailored to reflect the particular employee’s seniority and level of access to confidential information. There is no ‘one size fits all’ formula workable for all employees.

It is also vital that these bespoke restrictions are appropriate to the specific employee and go no further than absolutely necessary to protect the employer’s legitimate interests.

Finally, employers should regularly review such covenants to reflect the changing life cycle of an employee. A restrictive covenant that may have been appropriate at hiring may no longer suffice following a significant promotion.

By Catherine O’Flynn and Ailbhe Dennehy, with contributions by Maeve Griffin

Catherine O’Flynn is head of William Fry’s Employment & Benefits department and advises on all contentious and non-contentious employment matters with a particular expertise in equality issues. Ailbhe Dennehy is a partner at William Fry with a background in employment law. Maeve Griffin is an associate in the Employment & Benefits department with extensive experience in employment law, commercial contracts, civil litigation and data protection.

A version of this article originally appeared on the William Fry blog.

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