The High Court has refused to grant injunctive relief for the enforcement of a non-compete clause in circumstances where a senior trader had been on sickness absence and away from the business during their 12-month notice period.

The case serves as a helpful reminder of the approach the court will take when looking at post-termination restrictive covenants (PTRs) and, in particular, how it deals with their enforcement in circumstances where an employee has had significant periods of absence from the business.

Background

In the case of Dare International Ltd v (1) Stephen Soliman (2) Ashley Hikmet, Dare International Ltd (Dare) claimed damages for breach of contract and fiduciary duty, and sought injunctive relief to enforce PTRs against two former employees, Stephen Soliman (SS) and Ashley Hikmet (AH). The defendants, who were Senior Traders at Dare, had accepted employment with a rival firm, Onyx Capital Management Limited (Onyx) in their Dubai office.

As a reminder, there are two fundamental questions for courts looking at PTR enforcement: 

1. is the restriction enforceable in principle – a pass/fail test; and
2. if so, should it be enforced in these specific circumstances – a more discretionary exercise.

SS and AH resigned from Dare in November 2023 and February 2024, respectively, and had 12-month notice periods. Both defendants were told they would be required to work during their notice period and would not be placed on garden leave. Shortly after SS's resignation, SS was signed off sick due to a flare-up of an existing chronic condition. AH was also signed off sick because of stress. During their sickness absence, both individuals went on numerous holidays, travelled extensively, and socialised on late “night outs”. Despite requests from Dare to do so, they both refused to attend any Occupational Health Assessment. Dare alleged that both sickness absences were a ruse and an attempt by the defendants to avoid working their notice periods. Dare terminated both defendants' employment and paid them in lieu of their unexpired notice.

Rival arguments

SS and AH had identical PTRs, including a 12-month non-compete, non-solicit, non-deal, and non-poach. The restrictions all commenced from the date their employment terminated and were reduced by time spent on garden leave. The defendants argued that Dare had no legitimate business interests to protect by way of the PTRs and, in any event, the scope and duration of the PTRs as drafted were too broad. In the alternative, the defendants submitted that if the court found the PTRs to be enforceable, they should exercise their discretion to refuse an injunction because both defendants had been absent from work and out of the market, so that Dare had already enjoyed the benefit of the protection. Dare submitted that the PTRs were enforceable against the defendants and sought injunctive relief for the enforcement of the PTRs.

In addition, Dare alleged that both defendants failed to comply with a number of their express contractual obligations owed to Dare following their resignation, including attending work during their notice period, misusing confidential information, and being directly or indirectly engaged with a competing business. Dare claimed damages for breach of contract and sought springboard relief contending that the defendants had obtained an advantage through their actions.

Dare claimed that the defendants' actions destabilised the workforce and caused significant financial losses; approximately 15 other employees resigned from Dare after the defendants.

Decision

Enforceability of PTRs

The non-compete PTR was most contested by the parties. In analysing the construction of the non-compete clause, the court held it was a reasonable means of providing Dare with the protection of its business interests. The court held the duration of 12 months was appropriate and found that the confidential information the non-compete aimed to protect had a shelf life of 12 months.

The court did not consider that a 12-month restraint was reasonable for the non-solicit, non-deal, and non-poach restrictions. The court found that the duration was too long to be necessary for protecting Dare's trading connections or for recruiting and training relevant personnel, if there were any poached employees.

Injunctive relief 

The court refused to exercise its discretion to grant injunctive relief for the enforcement of the non-compete against SS. In its reasoning, the court said that Dare had already enjoyed the protection against competition for more than 12 months whilst SS was on sickness absence. During the period of sickness absence, the court found that SS did not have access to or use of Dare's confidential information, had not done any work for Onyx, and had not prepared to compete against Dare.

In contrast, the court granted an injunction to enforce the non-compete for its entire 12-month duration for AH. Despite also not working during his notice period, the two defendants differed in that:

• AH's absence from work was not genuinely due to sickness; 
• AH had deliberately refused to attend work in breach of his employment contract;
• AH had carried out preparatory work for Onyx during his notice; and
• AH had disclosed confidential information to Onyx during this notice and met with brokers.

As a result, Dare had not been afforded the protection that it would be expected to enjoy during the 12-month duration of AH’s non-compete.

Practical points

• The court helpfully acknowledged that confidential information is not limited to documents and emails, but can include information that can be "dredged up from the recesses" of an employee's memory.
• The judgment reiterates the importance of the need for genuine medical evidence in cases of sickness absence supported by clear, independent, contemporaneous documentation.
• The judgment highlights that in circumstances where an employee has been lawfully absent from a business prior to the termination of their employment, the court may consider whether the business has been sufficiently protected during such time when exercising its discretion to enforce PTRs.