Veitch Penny LLP - Exeter | Crediton, Devon

Case

Hydra Plc (1) Hydra Liveware Ltd (2) Comms Liveware Ltd (3) Ecommbox Ltd (4) -v- Martin Anastasi (1) Keith Marsh (2) Tomax Solutions (3)
Queen's Bench Division (20 June 2005)

Issues

(1) Compromise Agreements
(2) Contract of Employment
(3) Restrictive Covenants

Facts

Mr Anastasi was originally employed by Hydra Plc ("Hydra"), but had subsequently set up Tomax Solutions ("Tomax") which supplied services back to Hydra. Hydra then took the decision that it no longer needed the services of Tomax or Mr Anastasi. A compromise agreement was agreed between the parties.

Mr Marsh was employed by Hydra as a Salesman. However, Mr Marsh left Hydra to join Tomax as a partner. Under the terms of the earlier compromise agreement, Mr Anastasi and Tomax agreed not to approach any actual, prospective or potential customers of Hydra within a period of 9 months from the date of the agreement and also not to solicit or entice away any Hydra's employees for the period of 12 months following the termination date. Under Mr Marsh's own contract of employment, he was restricted from entering into partnership with a key person for a period of 12 months following the termination of his employment.

Hydra sought damages against Anastasi and Tomax regarding the breach of the compromise agreement and also brought a claim against Mr Marsh in respect of breaches of his contract of employment. Hydra argued that Tomax had poached customers belonging to Hydra, and that Mr Anastasi had solicited Mr Marsh to leave Hydra's employ so that Mr Marsh was in breach of the restrictive covenants in his own contract.

Decision

The Court made a finding that, on the evidence, Tomax had not approached Hydra's customers and noted that Hydra had not provided any evidence in relation to that contention.

With regard to the restrictive covenants in the compromise agreement, the Court had to consider whether the clause was reasonable. The Court highlighted that each case would turn on its own facts, but found that the clause was not unreasonably in restraint of trade because it did not distinguish between senior and more junior members of staff. In Hydra's case, it was a small company with few employees. Consequently, it was entitled to protect the stability of its workforce. However, the wording of the non-solicitation clause referred to the word "entice" which in this context meant "tempt, lure, persuade and inveigle". The Court concluded that the particular wording did not cover the particular situation at issue where Mr Marsh had approached Mr Anastasi and sought to persuade him to let him join his new company. Mr Marsh had contacted Mr Anastasi in the first place, and the fact that Mr Anastasi had made an attractive offer when approached was not sufficient.

The Court went on to find that Mr Marsh had been technically in breach of the restrictive covenant not to enter into a partnership with a key person within 12 months of leaving Hydra. However, on the evidence, Tomax and Mr Anastasi had not been dishonest and there were no actions for which they could be found liable.

Comments

This case highlights the importance of ensuring that any restrictive covenants contained with compromise agreements and contracts of employment are drafted carefully. Where doubt arises regarding the enforceability of such a clause it is better to err on the side of caution, to ensure some protection is provided, rather than drafting a clause which is too wide and is subsequently found to be unenforceable.

Rachel Billen - Associate Solicitor, Commercial Department at Veitch Penny.
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