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A recent case highlights the importance of employers taking prompt action against former employees in respect of protecting intellectual property (IP) and confidential information.
In Allfiled UK Ltd v Eltis and others, Allfiled UK Ltd (Allfiled), sought an interim injunction from the High Court against a number of its former directors and employees (and others) in order to prevent them from acting in competition with Allfiled in exploiting confidential information and IP, and in contravention of their relevant restrictive covenants and statutory and/or contractual duties.
Allfiled's primary business was the creation and development of a personal data store system (PDS system). Following a lengthy disagreement with Mr Shah, one of the directors of Allfiled, about the corporate structure of the business, a number of the other directors left Allfiled. There is some documentary evidence that the departure of the various directors was orchestrated and that they intended to take and make use of some of Allfiled's IP, as well as poach the PDS system development team. Port Technologies Limited (Port Tech) was set up in competition and entered into a contract with one of Allfiled's former key accounts (Magpie).
It was some eight weeks after the departure of its key directors and all its staff, with equipment and IP, before Allfiled commenced proceedings.
In deciding whether to grant an interim injunction (effectively preventing any further potential breaches until a full trial can take place), the High Court confirmed that the guidelines of the American Cyanamid case applied. In summary, the guidelines consider:
whether the applicant (in this case Allfiled) has raised a serious question to the tried
the adequacy of damages as a remedy (as an alternative to granting the injunction)
the 'balance of convenience', and whether the status quo should be maintained
In respect of the third point, the High Court noted that where other factors appear evenly balanced, the courts will generally act to preserve the status quo. However, the judge noted that the relevant status quo was, in the ordinary course of events, the position 'immediately prior to the commencement of the breaches alleged' but 'if the applicant delays, a new status quo may be held to have developed during the period of delay'.
In view of the significant delay in taking action, the judge granted an interim injunction but subject to a proviso, rather than prevent Port Tech from fulfilling their contract with Magpie entirely, Port Tech was permitted to deliver the contract, provided that it did not use confidential information belonging to Allfiled to do so.
Whether an interim injunction will be granted and, if so, on what terms depends entirely on the facts of the case. Employers are reminded however of the importance of taking action as a matter of urgency on becoming aware of a breach by a former or current employee. This case highlights that, the longer a breach goes unchallenged, the more likely it is that a new status quo is established and the protection offered to the applicant is reduced accordingly.