Recruitment consultants' restrictive covenants upheld

A recruitment consultancy has successfully obtained interim interdicts against three former employees competing with its or soliciting its clients for a six month period across the UK, in terms of a restrictive covenant in their contracts of employment.

Lady Wolffe in the Court of Session refused motions for recall of interim interdicts granted ex parte in favour of Apex Resources Ltd against Ross MacDougall, Lisa Mulholland and Jennifer Seagriff, and their new employer Caval Ltd, holding that as the effect of the clause was limited to the construction industry, it was properly matched in geographical scope to the defenders' previous activities, and the pursuers had averred a justification for the time period, the pursuer had a strong prima facie case that the clause was no more than reasonably necessary to protect its legitimate business interests.

The pursuer specialised in recruiting for the construction sector. The individual defenders left in December 2020 and January 2021 to join Caval, an established UK agency which opened in Glasgow in January 2021. At the recall hearing the defenders offered undertakings in relation to some conduct sought to be interdicted (relating to interfering with the pursuer's goodwill, and canvassing or soliciting their clients), but not the non-compete clause.

The defenders argued that the effect of the interdict was that they would be unable to work for any other recruitment consultancy for six months, given the risk that there would be some identity of work carried out, thus it effectively took away their livelihoods. Counsel founded on Quilter v Falconer & Continuum [2020], where restrictive covenants were held to be unenforceable as being wider than reasonably necessary. 

Lady Wolffe adopted the approach taken by the judge in Quilter, but ruled that both the terms of the covenants and the circumstances were very different in the present case. In Quilter the duration was nine months and the restriction also covered new clients. There was greater ease of movement of clients in the construction sector. The defenders in this case were not rendered unemployable, and the pursuer had averred business relationships that justified a six month protection.

There was therefore a strong prima facie case, and the balance of convenience also favoured the pursuer where Caval had newly opened in Glasgow and the pursuer estimated it has been losing £5,000 a week since the opening.

Diane Cairney, head of Litigation at Miller Samuel Hill Brown, who acted for the pursuer, commented: "Although it can be a high bar to overcome, if the circumstances are right, non-compete restrictions are perfectly valid and will – as happened in this case – be found to be enforceable. 

"It is also a reminder to employers than generic contracts are not the best option but rather should be tailored to the risks and nuances of specific industries."

Click here to view the opinion.