In employment terms, a restrictive covenant inhibits a departing employee from working for a competitor for an agreed period after leaving his or her job. They’re nothing new and fairly standard in senior contracts where employees are privy to information that could be detrimental to a company if shared with competitors. But the recent Ryanair DAC v Peter Bellew case put restrictive covenants, and more specifically their enforceability, into the spot light again.
An overview of the case
Mr Bellew was appointed the Chief Operations Officer (COO) of Ryanair in October 2017. In April of 2018 Mr Bellew consented to a post termination restriction in the form of a non-compete clause whereby he agreed not to be “employed, engaged, concerned or interested in any capacity in any business wholly or partly in competition with the Company for air passenger services in any market” for 12 months on termination. This addition to Mr Bellew’s original contract was made when Mr Bellew was given access to Ryanair’s share option scheme in 2018.
In July of 2019 Mr Bellew stepped down from his role as Ryanair’s COO and then informed Ryanair that he would be joining EasyJet as COO on 1 January 2020.
Ryanair commenced injunctive proceedings in August 2019 seeking to prevent Mr Bellew from joining EasyJet for at least 12 months from the date of his Ryanair termination, as per the non-compete restrictive covenant in his contract.
Mr Bellew, who said he would honour his obligations of confidentiality, contested that Ryanair’s restrictive covenant was “further than is necessary for the legitimate protection of Ryanairs interest”
Decision of the High Court
Looking primarily at the concept of restraint of trade the High Court, by way of a two-fold test, deemed a restraint of trade to be unenforceable unless it
- is reasonable as between the parties;
- is consistent with public interest.
The Court admitted that such non-compete clauses are “justifiable” however in this case, although the Court had no difficulty with the 12-month element of the restrictive clause they did have an issue with the broadness of the restrictive clause and deemed it ultimately to be too wide and as such unenforceable.
A cautionary tale for employers
The ruling in this case highlights the danger in using restrictive covenant ‘templates’ that are not specifically tailored for the position and person to which they apply. Employers need to think carefully about how an employee could cause damage to the company post termination and ensure the wording reflects this. Use of ‘standard’ non-compete clause wording should be avoided as without justifiable cause; the clause could easily be ruled null and void.
What’s more, wording should specifically outline the types of business and roles that the employee is prohibited from entering. Again, without specificity, the contract may be deemed unenforceable.
About the author, Marc Fitzgibbon, Senior Partner and Head of Employment at Lavelle Partners