Published: 14 June 2015
Today, Rosina Hough has been reviewing a recent Injunction Hearing on breach of Contracts of Employment.
Allfiled UK Ltd v Eltis and others  EWHC 1300 (Ch)
Allfiled UK Ltd (the Applicant) successfully sought an injunction to prevent former directors and employees (the Respondents) of Allfiled UK Ltd from using confidential information and intellectual property. Allfiled UK Ltd also sought injunctions to prevent the Respondents from carrying on any trade in breach of the non-compete and non-solicitation clauses in their contracts of employment with Allfiled UK Ltd.
Allfiled UK Ltd is a software development company. It allows individual consumers to store confidential personal data on a system which then allows financial and other services to contact these individuals to offer further or alternative services to the ones they are currently using.
The Applicant has claimed that three former directors enticed a number of former employees to leave Allfiled UK Ltd and join Port Tech, a competitive company set up and owned by the three former directors. Furthermore, Port Tech developed and sold a similar service to that of Allfiled UK Ltd, to existing customers of Allfiled UK Ltd, particularly one of Allfield UK Ltd’s major clients, using technically similar systems.
The Applicants argued that these actions were clearly in breach of the contracts of employment, which apply to all of the Respondents. The contracts contain confidentiality, non-solicit, and non-compete provisions. Additionally, it is claimed that intellectual property belonging to Allfiled UK Ltd was used by the Respondents to set up Port Tech, and sell a similar service to that of Allfiled UK Ltd. Allfield UK Ltd’s confidential information was used to approach clients of Allfield UK Ltd and “poach” these clients to Port Tech. The Respondents submitted that the non-compete and non-solicit clauses were far too broad to be enforceable.
The Respondents submitted that the clauses in their contracts which Allfield UK Ltd were claiming to have been breached, especially the non-compete clauses, are too broad to be enforceable. They maintain that the non-compete clause would prevent any ex-employee of Allfield UK Ltd for 12 months from working for any company within the technology industry. The technology used by Allfield UK Ltd is similar to that of Twitter, Facebook and Instagram and many other IT companies. This would therefore mean that ex-employees would be unemployable for 12 months following an exit from Allfield UK Ltd.
The clauses on confidential information and intellectual property are difficult ones to deal with as there are no patents on the technology of Allfield UK Ltd, and no classification of what information is confidential. It is hard to know what knowledge comes through a comprehensive understanding of the industry and what is particularly sensitive information owned by Allfield UK Ltd.
The Court has stated that discussion will be heard in the full trail as to whether these clauses are unenforceable under the Unfair Contract Terms Act 1977.
Similarly the three former directors of Allfield UK Ltd have duties and obligations under the Companies Act 2006. These duties include a duty to ‘avoid conflicts of interest’ and ‘not to accept benefits from third parties’. Directors continue to be subject to these two provisions even when they retire. Allfield UK Ltd claim that following their actions the three former directors are in breach of these duties.
There is a lot of case law and discussion around this matter and it is found to depend on the facts of each case as to whether a director has breached duties following resignation, or whether he is using knowledge of the industry gained in his position as a director.
In granting interim injunctions the Courts follow the approach laid down by Lord Diplock in the case American Cyanamid Co v Ethicon Ltd.
This case requires four factors to be satisfied to ensure that an injunction is the only remedy available to the parties. Injunctions can be quite severe the Courts must ensure that there are no other remedies available before granting one. The Respondents had requested that the Court depart from the use of the American Cyanamid test in these circumstances. Notably in this case the Court determined that the American Cyanamid test was established and confirmed that this test should only be departed from in very extreme circumstances.
The Chancery Division ordered the injunction, restricting the Respondents to continue only certain business, on condition, pending an expedited trial.
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