Len Coppage signed an employment contract banning him, for six months after leaving, from soliciting the business of any customer of his employer (Safetynet Security/”SS”). Len left SS and soon five SS customers switched to Len’s new company. Nicola Doran and Chris Stack report the court’s view on whether the non-solicitation ban was valid and breached.
Topic: Restrictive covenants
Who: Safetynet Security Limited v (1) Leonard Coppage (2) Freedom Security Solutions Limited
Where: Mercantile Court, UK
When: 15 August 2012
Law stated as at: 12 September 2012
Employers often seek to protect their business interests and customer base against a departing employee through the use of restrictive covenants in an employee’s contract of employment.
Such restrictions may include a non-solicitation clause to try and prevent a former employee from enticing certain categories of their former employer’s clients to give their business to their new employer for a period of time following termination of their employment.
However, employers must ensure that restrictive covenant clauses do not unreasonably restrict a former employee or go further than is necessary to legitimately protect their business. Failure to do so will risk the clause being declared unenforceable by a Court.
The claimant, a security company called Safetynet Security Limited (“Safetynet”), brought a claim against Mr Coppage, its former Business Development Director for breach of a restrictive covenant. The restrictive covenant in Mr Coppage’s employment contract stated that, for a period of six months after the termination of his employment, he would not approach anyone who had been a customer of the Safetynet while he had been employed there, for the purpose of soliciting business which Safetynet could undertake.
The day after Mr Coppage resigned, a new company called Freedom Security Solutions Limited (“Freedom”) was set up by Mr Joshua Hadley, a 21 year old trainee electrician and part time door supervisor. Within a short time, five of the claimant’s customers (about 5% of their client base) cancelled their contracts Safetynet and moved their business to Freedom.
Safetynet brought a claim alleging that Mr Coppage had breached the restrictive covenant and further alleging that he was effectively the controlling the mind of Freedom. Mr Coppage brought a number of counterclaims relating to events surrounding the termination of his employment and also alleged that the non-solicitation restriction in his contract was drafted too widely and was unenforceable.
The Mercantile Court had to consider whether the non-solicitation restriction in Mr Coppage’s contract of employment was reasonable and, therefore, enforceable.
Post-termination restrictions in a contract of employment will be void as an unlawful restraint of trade unless an employer can show:
- that the restriction is necessary to protect a legitimate business interest; and
- the protection goes no further is reasonable (both in duration and scope) having regards to the interests of the parties and the public interest.
In deciding this case, the Court provided some useful guidance on how to evaluate the reasonableness of a post-termination restriction:
1. first, the Court should consider the construction of the clause for its pure meaning.;
2. second, the Court should consider the object of the restraint – in this case it was the protection of Safetynet’s customer base and goodwill; and
3. finally, the Court should interpret the clause in context, having regard to the specific facts at the date at which the contract of employment was made.
Mr Coppage argued that the restriction on soliciting all customers and clients of Safetynet was too wide to be enforceable, as it could cover people with whom he had never had any personal dealings. He asserted that the clause should have been restricted to customers with whom he had had dealings over the last 12 months of his employment.
However, the Court made it clear that when considering the reasonableness of a restriction, the facts of an individual case will play an important role. In this case, Mr Coppage was a senior person within Safetynet, he had an integral role in a relatively small business and was effectively seen as the ‘face of the business’. As a result of this Mr Coppage was well acquainted with the whole of Safetynet’s customer base and was readily identifiable with the goodwill built up within the Safetynet’s customer base. Therefore, the Court found that limiting the restricted customer base in the way Mr Coppage suggested would not have given Safetynet adequate protection.
The Court commented on the drafting of the restrictive covenant stating it was unambiguous and provided wholly appropriate protection for Safetynet and its customer base whilst being limited so as to allow Mr Coppage to continue earning a living.
The Court was also satisfied that Mr Coppage was the controlling mind of Freedom, to which Safetynet’s customers and clients had moved their business. Therefore, the Court held that Mr Coppage was in breach of his non-solicitation restriction and awarded of £50,000 in damages to Safetynet, for which Mr Coppage and Freedom were jointly liable.
Action for employers
The outcome in the Safetynet case turned largely on its specific facts. However it serves as a useful reminder to employers in the advertising and marketing sectors that they should ensure that post-termination restrictions in the employee’s contracts of employment are:
- well-drafted and unambiguous;
- precisely defined in terms of scope and duration; and
- go no further than is necessary to protect legitimate business interests.
Well-drafted restrictions can prevent an employer losing business and goodwill following the departure of an employee. In addition, where such business is lost in breach of an employee’s restrictions the former employer may be able to recover some of the lost revenue.