Facts
Mr Christensen was employed from June 1998 as an employee of
Symbian Ltd. He became an Executive Vice President of Sales
and Marketing of Symbian as well as being a director. Symbian
was formed as a result of a joint venture between Psion and four
other companies, and the main purpose of the joint venture was to
develop and operate “wireless information devices” (WIDs), largely
high technology mobile phones, to be used in conjunction with a
Symbian software platform known as EPOC. The WIDs and the
EPOC system in basic terms constituted “front-end” applications and
platforms. Symbian did not deal with the development of
“back-end” computer systems which would serve the front-end
applications and platforms. Microsoft did deal in back-end
software and operated a rival platform to the Symbian EPOC software
known as Windows CE. However, it appears to have been
accepted in this case that there are close practical links between
front-end and back-end software, as it is difficult to operate the
one independently of the other. Therefore, it was accepted
that although Symbian and Microsoft were not competitors in terms
of back-end software, they were competitors relating to other
products.
Mr Christensen’s employment contract contained a six month
notice period. In March 2000 he gave notice to Symbian that
he wished to leave. He did not give the full six months’
notice. Symbian learned that Mr Christensen intended to go to
work for Microsoft. Mr Christensen considered that Microsoft
was not a competitor of Symbian. Nevertheless, Symbian
applied for an injunction from the High Court which, in essence,
would prevent Mr Christensen from being employed by or providing
advice to any present or intended future competitor of Symbian and
from acting in breach of implied duties of good faith and fidelity
owed to Symbian during the garden leave period. In doing so
they sought to rely on the terms of a “garden leave” clause in Mr
Christensen’s contract, and to link it to a further clause which,
in essence, stated that Mr Christensen would not be concerned with
any competitor or other business, other than the business of the
Symbian Group during the course of his employment with
Symbian.
Mr Christensen’s contract contained a number of covenants
restricting his activities after termination of employment.
However, these were not directly relevant to the case. The
main clauses under scrutiny were as follows:
“[Mr Christensen] shall not during the
term of this Agreement, except as a representative of the Group or
with the prior consent in writing of the Board, such consent not to
be unreasonably withheld, be directly or indirectly engaged or
concerned or interested in any capacity in any trade, business, or
occupation whatsoever other than the business of the Company,
whether or not competing in any material respect with the business”
(Clause 4.3).
Clause 12.3 was the “garden leave” clause and stated:
“the Company may suspend [Mr Christensen]
from his duties and not require [Mr Christensen] to attend his
place of work or provide him with any work during the period of
notice whether that notice is given by the Company or by [Mr
Christensen]. The Company need not give any reason for
exercising its rights under this clause, but must provide the
remuneration due to [Mr Christensen] during the relevant period of
notice. During any period of suspension … [Mr Christensen]
must not without the written consent of the Board … contact … any
customer or supplier of the Company or other member of the
Group.”
The “business of the Group” was defined as the business
of “the research development devising writing and engineering,
licensing, marketing, distributing and supply of computer software
and computer products of all kinds as carried on by the Group from
time to time”.
Judgment
The injunction application was initially heard by the Vice
Chancellor, Sir Richard Scott, in the High Court. Sir Richard
Scott VC had decided to grant an injunction to Symbian but only in
limited form. The decision was that the original terms of the
injunction sought were too wide, and that the implied duties of
good faith did not apply during the garden leave period because
garden leave put an end to the employment relationship for that
purpose, although contractual obligations could be enforced if
necessary. He held, however, that a limited injunction could
be granted restraining Mr Christensen from starting employment with
Microsoft alone up to the expiry of the six month notice
period. The Court of Appeal was hearing Mr Christensen’s
arguments that Sir Richard Scott VC should have held the terms of
clause 4.3 to be entirely invalid and that he could not allow that
clause to be enforced only in a limited manner.
The Court of Appeal considered that a clause restraining
activity during employment is limited by the doctrine of restraint
of trade, just as a post termination covenant would be – i.e. they
need to be justified so as to be reasonable in terms of the
legitimate protectable interests of both parties, particularly in
terms of protection of customers and confidential information, and
insofar as they are not contrary to public policy.
Further, the Court of Appeal rejected Mr Christensen’s argument
that this clause was entirely invalid due to restraint of trade
arguments. The clause in itself was justifiable on its face
and it made no difference that the company had placed Mr
Christensen on garden leave and still sought to enforce the
clause. The Court of Appeal then considered whether it was
possible to enforce such a potentially valid clause but in a
modified manner so as not to be unreasonable. The point was
made, and previous cases suggested, that the garden leave clause in
itself should not be used to gain an injunction to give an employer
any greater protection than would be given by a justifiable and
valid restrictive covenant.
On considering the evidence it was noted that given the nature
of the Symbian and Microsoft business, Symbian had a justifiable
interest in preventing Mr Christensen’s employment by Microsoft
during the garden leave period because their business might be
damaged. Therefore, although an injunction restraining Mr
Christensen from performing any activity in breach of clause 4.3 of
the contract would not be possible as it would be too wide,
granting an injunction to prevent him solely from working for
Microsoft would protect a legitimate interest of Symbian. On
this basis, the Court of Appeal found nothing wrong with the
findings of Sir Richard Scott VC and allowed the injunction to
stand.
Commentary
Issues of confidentiality are key in the context of the IT
industry and clauses in employment contracts such as in this case
are extremely important. Competition is so keen in some
sectors of the IT industry with technology moving so fast that much
can hang on the outcome of employment litigation such as this.
The doctrine of restraint of trade is well established to bite
most readily on the analysis of post-termination restrictions,
whereby employees agree not to pursue certain activities once they
have left employment. Such covenants often include an
agreement not to compete with the business of the company for a
certain period of time and in a restricted area; not to solicit
and/or deal with customers or suppliers of the company; and/or
covenants not to poach categories of employees from the company
involved. However, in each case, in order to avoid the clause
being struck down as being a restraint of trade, the company will
need to prove that it has legitimate interests to protect and that
the clause in each case is no wider than is needed to protect those
interests. Typically, the main interests are customer
connections, confidential information and to a certain extent
maintaining an existing workforce. Given the well documented
difficulties in enforcing clauses of these types, employers have in
recent years included garden leave clauses in employment contracts,
whereby during the period of garden leave the employee has been
understood to be still subject to the terms of the contract and
still an employee of the company with ongoing duties (often both
express and implied) not to compete with the interests of the
company or to work for others during that period, at least without
consent.
However, the Symbian case (which is not without practical and
legal difficulty and which may be attacked fairly heavily in the
future) seems to suggest that employers will need to review their
strategies in assuming that they can rely heavily on the
effectiveness of garden leave clauses. The main reason is it
seems clear from the case that a court will apply similar public
policy questions to injunctions relating to activities during the
garden leave period as they will to post-termination restrictions
and employers will need to show the existence of legitimate
interests to enforce the restrictions during employment.
However, in one practical sense the manner in which a court will
review post-termination restrictions, and restrictions which
restrain an employee during the employment contract seem to be
different. It is well accepted that a court will not re-write
a post-termination restriction. It will allow the deletion of
certain parts if the remainder still makes sense. However, it
will not reconstruct the clause or “whittle it down” and so, for
example, if a post termination restriction prevents competition
within ten miles of an office, the court will not insert five miles
instead. Nor will it change a restriction for one year after
termination of employment to a restriction for six months.
Instead, the court will simply say it is too wide and the whole
clause is invalid and unenforceable. However, from the
Symbian case it does appear that the court is entitled to dilute a
“during employment” clause so as to make it reasonable. This
is how the court was able to turn a restriction concerning
employment by any company into a covenant solely restricting
employment by Microsoft.
There have always been arguments that the implied duty which is
upon an employee to act in good faith towards an employer can be
construed in a limited manner (e.g. treating a general duty as a
duty not to work for a single contractor) but in the Symbian case
Sir Richard Scott CV said that this implied duty does not continue
to run during a garden leave period. This, with respect, does
seem fairly astonishing and must be open to attack.
However, beyond the peculiarities of the Symbian case, the clear
lesson is that employers will need to review garden leave clauses
to ensure that specific contractual duties of the employee are
clearly stated to continue running during any garden leave
period.
