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Employment Law

Legal guidance - compliance - software

30 APR 2014

Employee competition: fact of breach of undertakings does not give automatic right to interim injunction

Employee competition: fact of breach of undertakings does not give automatic right to interim injunction

Douglas Leach, Guildhall Chambers

When employees leave and defect to a competing employer, claims for injunctions founded on breaches of post-termination covenants and/or breaches of obligations of confidence, are often settled upon the employee giving undertakings not to engage in certain activities. In Capgemini India Private Ltd and anor v Krishnan and ors [2014] EWHC 1092 (QBD), the High Court had to consider the effect of such undertakings in circumstances where the employee later withdrew them.

Facts

The Defendant employees ("the Respondents" to the application) worked for Capgemini India Private Ltd ("Capgemini") on a project called "Vision Plus Service" which was a service provided to Capgemini's client, First Data. Capgemini lost the contract to provide that service, and Infosys Ltd ("Infosys") took it over in mid-August 2013. At about that time, the Defendant employees gave notice to terminate their employment with Capgemini, and commenced employment with Infosys in November, working on the same Vision Plus Service which Infosys was by then providing to First Data in place of Capgemini.

In January 2014, Capgemini's solicitors wrote to the Respondents, reminding them of the post-termination restrictive covenant contained in their contracts of employment with Capgemini, and requesting that the Respondents give undertakings to the effect that they would comply with that covenant, which was at clause 3.11 of the contract. That clause stipulated that the Respondents were not to have dealings with Capgemini's existing customers without Capgemini's consent, with whom the Respondents had had business dealings or in relation whom the Respondents had had access to confidential or sensitive information, for the period of six months from the termination of their employment.

Within a few days, the Respondents replied via their own solicitors giving the undertakings as requested, in the terms of clause 3.11 and expiring on 7 May 2014 in the case of one of the Respondents and 14 May in respect of another. In essence, the Respondents undertook not to provide any IT consultancy services to First Data whether via Infosys or otherwise, for six months, and not to use or disclose Capgemini's confidential information relating to First Data. The Respondents gave those undertakings, in writing, because they wished to avoid the potential risks of litigation both in terms of costs (including their own) and any damages they might have to pay.

However, on 17 February 2014, the Respondents wrote a second time via their solicitors, withdrawing those undertakings. This was because the Respondents learned after giving the undertakings, that Infosys were in fact willing to meet the Respondents' costs and provide financial support. Consequently, Capgemini issued applications for interim injunctions in the High Court, in conjunction with a claim form (but without Particulars of Claim) claiming damages for breach of the undertakings given to comply with post-termination restrictions and/or the post-termination restrictions contained in the contracts of employment themselves. The injunctions sought were essentially in the terms of clause 3.11.

Fact of undertakings is a powerful factor...

Before HHJ Owen QC (sitting in the High Court), it was Capgemini's position that the undertakings that had been given were binding, and that it was not open to the Respondents to go behind them and attempt to argue that the restrictive covenant upon which the undertakings were based (clause 3.11) was unenforceable. The undertakings had been given freely following legal advice, in order to compromise threatened litigation (which amounted to good consideration), and that agreement should be upheld by granting an interim injunction in equivalent terms.

Capgemini relied on Worldwide Fund for Nature and ors v World Wrestling Federation Inc [2002] EWCA Civ 196 and Thurstan Hoskin & Partners v Jewill Hill & Bennett and ors [2002] EWCA Civ 249.

HHJ Owen QC summarised the effect of the Court of Appeal's judgment in Worldwide Fund for Nature as being that:

"where a claimant had been a party to a settlement in an intellectual property dispute designed to define the boundaries of his trading rights as against the defendant, he was entitled to expect that settlement to be enforced. It was not for him to prove that it was reasonable. The presumption was that the restraint, having been agreed between the two parties most involved, represented a reasonable division of their interests. It was for the defendant seeking to avoid that agreement to show that there was something which justified such a course, for example, because the dispute was contrived or because there was no reasonable basis for the rights claimed or because it was otherwise contrary to the public interest."

In effect, there is a threshold requirement before any question arises of the party seeking to uphold the agreement having to justify its terms, and on the facts there had been no basis for moving on to the question of enforceability. However, it is not the case that the fact of having agreed undertakings will always automatically act as a bar to raising questions of enforceability.

Similarly in Thurstan, Hoskin & Partners, the terms of a compromise agreement were upheld, in circumstances where there had been an order declaring there to have been full and final settlement of the claim. The agreement containing the clause in dispute (which placed restrictions on the clients the departing solicitor could have dealings with) was attached to a court order, and brought the deed of partnership to an end. Further, the case did not involve an employer/employee relationship, but a partner of a firm of solicitors reaching agreement for substantial consideration with the firm he was leaving behind. The ratio of the decision however, was that the clause in the agreement did not go further that was reasonably necessary to protect the firm's legitimate interests, and the point that it would be contrary to public policy to allow the departing solicitor to renege on the agreement he had reached was strictly obiter.

In the present case, the Respondents argued that the terms of the undertakings based on clause 3.11 were unreasonable is scope and not binding. They had been given with the caveat that no admissions were made as to the enforceability of clause 3.11. There had been no compromise agreement here as there had been in Thurstan, Hoskin & Partners, and it was for Capgemini in this case to demonstrate the enforceability of clause 3.11 despite the existence of the undertaking. In any event, whatever the correct answer at trial might be as to the importance and effect of the undertakings that had been given, the court still had to consider on an interim basis whether or not to grant an injunction.

In HHJ Owen QC's view, the fact that the Respondents entered into the undertakings was a powerful factor. However, he rejected Capgemini's contention that that fact on its own precluded any consideration at all of the validity of the underlying clause or indeed of the ultimate question of whether an injunction should be granted. Rather, HHJ Owen QC considered that he was bound to consider all the circumstances. Those circumstances certainly included the fact of the Respondents having given the undertakings, but the case law indicated that there may be circumstances where any such agreement may be set aside, primarily on grounds of public policy.

...but not decisive of question of whether to grant an interim injunction

HHJ Owen QC was satisfied that on established American Cyanamid principles, there plainly was a serious issue to be tried in relation to the question of the breach of the undertakings that had been freely given, but that was not enough on its own to lead inexorably to the granting of an interim injunction. It was necessary to go on to consider the questions of the balance of convenience and whether it was just and necessary to grant an injunction to protect Capgemini's alleged legal right.

The problem for Capgemini in the present case was that it lost the First Data contract to Infosys perfectly legitimately, and there was no suggestion of any wrongdoing by the Respondents or Infosys. There was no prospect at all of Capgemini regaining the contract if an injunction were granted, and there was little or no evidence of the Respondents making use of any confidential information beyond using their own skill and knowledge.

HHJ Owen QC's view was that granting an injunction would "serve no useful purpose and would be a disproportionate response to the apparent though limited alleged breach of the clause." Most importantly, the loss that Capgemini could be said to have suffered was vague and tenuous, and Capgemini had failed to identify any particular harm that it had suffered as a result of the alleged breach beyond a generalised assertion that Infosys could not perform the contract with First Data without the Respondents, which was "wholly unconvincing". The clause was due to expire shortly in any event.

Accordingly, HHJ Owen concluded that damages would be an adequate remedy for Capgemini, and dismissed the application for an injunction.

Comment

As is generally the way with applications for interim injunctions, the alleged facts were all important in this case as far as the ultimate decision not to grant an interim injunction was concerned. The fundamental problem that Capgemini had, was that it was very difficult to see how any prejudice or loss had been caused by the apparent breach of the undertakings and/or clause 3.11 by the Respondents: the Respondents had lawfully given notice and gone to work for Insfosys because Capgemini had lost the contract, rather than the contract having been lost because they had left. Indeed, it would be somewhat surprising if Capgemini were to pursue the matter to trial, and perhaps the fact that no Particulars of Claim were issued with the Claim Form and Application Notice (contrary to the guidance given by Stanley Burnton LJ in Caterpillar Logistics Services (UK) Ltd v de Crean [2012] ICR 981 (CA) at para.73) is an indication of Capgemini's future plans in that regard.

In another case however, with better prima facie evidence of damage to a legitimate commercial interest, the fact of breach of freely given undertakings would weigh heavily in the balance and an injunction would be much more likely to be granted. The lesson here however, is not to expect breach of such undertakings to lead to one automatically.

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