The High Court recently refused an order for an interim injunction based on the fact that the employer waited almost five months before taking action. The Court of Appeal (CoA) subsequently refused permission to appeal against both the refusal to grant the interim injunction and, separately, the order for a speedy trial. The way the employer had framed the length of the non-compete period was unusual and it will be worth watching how the High Court ultimately decides on its enforceability – if the case ever gets that far. 

Facts

A leading investment firm, Jump Trading International (Jump Trading), sought an interim injunction to enforce a non-compete restrictive covenant against its former employee, Mr Couture. Jump Trading intended to prevent Mr Couture from commencing a new role with a global hedge fund competitor, Verition Advisors (Verition).

Mr Couture's employment contract with Jump Trading included a restrictive covenant that prohibited him from competing with the business for up to 12 months after termination of his employment, the final 12 months of which he spent on garden leave. The drafting of the covenant allowed the employer to decide on the length of the restricted period upon notice being given, as follows:

"Non-Compete Period: means the zero (0) to twelve (12) month period after the Termination Date as elected by the Company within twenty (20) business days following the notice of termination. The Non-Compete Period shall commence at the conclusion of any applicable Garden Leave or notice period."

The definition of "Competitive Activity" meant that the restriction would prohibit Mr Couture from "providing similar services to the services provided by the Employee to any Group Company" or "directly or indirectly utilizing or developing quantitative analytics that are based on, substantially similar to or derived from quantitative analytics that [Mr Couture] utilized or developed or had access to while … employed by any Group Company".

The definition of "Competitive Entity" included "those entities engaged in or preparing to engage in (i) business activities identical or similar to any of those engaged in by the Company; (ii) ownership or control of greater than five percent (5%) in any entity that engages in business activities identical or similar to any of those engaged in by the Company".

The wide drafting of the relevant clauses and the period of garden leave meant that, as drafted, Jump Trading could effectively prevent Mr Couture from participating in the market for two years.

In July 2022 while under notice, Mr Couture informed Jump Trading that he intended to join Verition when his garden leave ended in April 2023. Jump Trading told Mr Couture that it considered this to be a Competitive Activity and so prohibited it. There followed unsuccessful without prejudice discussions in an attempt to come to a solution. On 17 November 2022, Mr Couture wrote to Jump Trading to advise that he believed the restrictions in his contract were unenforceable and restated his intention to join Verition. He said he would spend at least 12 months working on software development (and not trading). He therefore believed that he would not be participating in Competitive Activities. Jump Trading did not follow up on this correspondence until 6 March 2023. It subsequently served the claim form and sought interim injunction to enforce the non-compete on 14 April 2023.

The High Court refused the application for an interim injunction, but made an order for a speedy trial. It noted that the employer's unreasonable delay to act was enough reason to refuse the injunction. The possibility of an expedited trial and/or the possibility of arbitration (had the application been made earlier) were critical to the High Court's decision.

Interestingly, the High Court also held that it was "at least arguable that, although the clause's temporal extent was not known at the time the contract was entered into, the fact it had a maximum duration of twelve months and a mechanism by which the employee would know its extent once an election was made does not necessarily make it unreasonable for the purpose of the restraint of trade doctrine". This is significant as it opens up the potential for a restrictive covenant that does not have a precise duration (at the time the contract is entered into) to be lawful and enforceable.

A speedy trial was ordered so that the matter could be resolved "early in the lifetime of the covenant".

Jump Trading's appeal

lThe CoA refused permission to appeal. In particular, it rejected the argument that Mr Couture starting his new job would be a "catastrophe" and considered that, given his period of garden leave, he was likely to have a "diminishing recollection" of trade secrets.

Verition's appeal

The CoA also refused permission to appeal against the order for a speedy trial. The CoA noted that in interim injunctive cases such an order is justified as "there is almost always real urgency". It also noted that the clause is not "obviously and inevitably void for uncertainty given that it provides machinery for resolving the question of length left open, subject to a maximum permissible period of 12 months".

Key takeaways

This case serves as another reminder that employers must not delay in proceeding with an application for an interim injunction. An unreasonable delay itself may be enough to justify refusal.

Courts will judge enforceability of restrictive covenants at the time the parties entered into the agreement, rather than at the time the employee leaves. This is an important point to bear in mind when a departing employee's role has changed since they signed their employment contract and indeed something to consider proactively when you offer an employee a promotion. Employers (and employment lawyers!) will be interested to learn what the High Court makes of the unusual wording presented in this case if the claim progresses.

The UK government intends to implement a three-month cap on non-compete clauses when Parliamentary time allows. We do not yet know whether this cap will apply retrospectively. If the High Court ultimately deems the wording of the non-compete to be lawful, such wording may become more widely used to give an employer a degree of flexibility.

If you have any questions about the issues raised in this article, please do not hesitate to get in touch with a member of the Dentons team.