Unreasonable delay can defeat an application for an interim injunction to enforce a restrictive covenant even if the individual has not yet started working at a competitor. However, the delay does not disentitle the original employer to a speedy trial.
In Jump Trading International v Couture, the High Court held that there was a serious issue to be tried as to whether an unusual non-compete covenant was enforceable, but refused an interim injunction due to the unreasonable delay. The covenant provided that the employer could specify the duration, up to a maximum of 12 months, by giving notice of this within 20 days of termination. Mr Couture had given 12 months' notice of resignation in March 2022; Jump immediately put him on garden leave and notified him that it was imposing a 12 month non-compete restriction at the end of the garden leave period. Mr Couture's prospective new employer, Veriton, obtained legal advice that the covenant was unenforceable and in July Mr Couture informed Jump of his intentions to move there at the end of his garden leave. Without prejudice negotiations to try and resolve the dispute lasted until November 2022 when Mr Couture made clear that he intended to join Veriton in April 2023 but would be spending a minimum of 12 months writing software (and so would not be trading in competition with Jump).
Jump only took action to try and enforce the covenant four months later, in April; it had no explanation for this delay and the Court held this was sufficient reason to refuse interim relief. The Court noted that, had Jump issued proceedings sooner, it was likely that the matter could have been resolved by exercising the arbitration clause in the contract or by an expedited trial before Mr Couture started work at the competitor, without the need for interim relief. In refusing permission to appeal this decision, the Court of Appeal rejected the contention that prior unreasonable delay should not deprive a party of interim relief as long as the proceedings were issued before the employee started the new job and a speedy trial could be arranged. The judge had been entitled to find that the delay was unreasonable and made it unjust to grant interim relief. This was not affected by Jump's offer to pay the other side's costs of the interim hearing and Jump had "greatly overpitched" the impact on its business of allowing Mr Couture to start work, given he had already served 12 months' garden leave. On the other hand, the Court of Appeal did not feel the delay should disentitle Jump to a speedy trial, refusing leave to appeal this part of the decision too. Regardless of whether interim relief is ordered, there will almost always be a 'real urgency' justifying a speedy trial where the case concerns a time-limited restrictive covenant. The immediate harm caused to Jump by Mr Couture starting work for Veriton did not mean there was no further harm done by Mr Couture continuing to work there throughout the period of the covenant.
The Court held that there was no serious issue to be tried in relation to the claim against Veriton for inducing breach of contract. Veriton had acted on legal advice that the covenant was probably unenforceable and, following the Supreme Court decision in Allen v Dodd & Co (see here), this was sufficient to defeat the claim.
The most unusual part of the case was the drafting of the covenant itself. At this stage Jump only had to establish that there was a "serious question to be tried" as to its enforceability. This is a low bar, which the Court held to be satisfied. Couture and Veriton had argued that the uncertainty in the duration rendered it clearly unenforceable, referring to caselaw establishing that "cascading clauses", where there are two or more similar restrictions of differing severity, have been held to be unenforceable for uncertainty because the employee cannot know which, if any, will be binding without a court decision. The High Court considered that it was at least arguable that the clause here could be distinguished from cascading clause cases because the clause itself provided a means for resolving the uncertainty – the employee knew there was a maximum period of 12 months at the time the contract was entered into, and would know the actual duration once the employer had made an election after termination. Although there was uncertainty at the time of signing the contract as the employee would not know the period until after resigning, in these "murky and unchartered waters" the court could not say that there was no serious issue to be tried. There were also potential legal issues about whether the length of the clause should be assessed in light of the actual or potential period of garden leave and whether the lengthy period and scope could be justified on the facts. It will be interesting to see how the Court charts these waters if the case goes to full trial.
Originally published 30 June 2023
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