Lessons from the Supreme Court: don't threaten to sue an ex-employee for soliciting your clients if you know you have no legal right to do so

Many employerstry to prevent departing employees from poaching their clients and staff by including well written restrictive covenants in their contracts of employment. If the employee breaches those terms, they can enforce the restrictions against the employee directly and, in some cases, against their new employer if they have induced the breach. 

In George v Cannell and another, the Supreme Court had to decide if an employer had acted unlawfully after one of its employees left to join a competitor. The employer contacted the employee’s new manager and one of its own clients (who was considering doing business with the new employer) to explain that their former employee was in breach of their restrictive covenants even though it knew that wasn't true.

The court also had to decide if the claimant could claim damages for injury to her feelings on the basis that the lie amounted to a malicious falsehood.

Facts

The claimant worked as a recruitment company for an agency owned and operated by the first defendant called LCA Jobs Limited. She resigned and began working for a competitor recruiter and started to target LCA's clients, one of which provisionally instructed her to find candidates. LCA got wind of what she was doing and sent an email accusing her of breaching her “post-employment obligations … not to solicit business from LCA's clients and candidates”. It also said that it would write to her new employer and to its own clients “to advise them of [her] actions and [her] violation of the terms of [her] post-employment data protection policy”. It threatened to take “severe legal action” unless she confirmed that she would not contact those clients. 

Almost immediately afterwards one of LCA's clients asked the claimant to stop working on the matter it had instructed her on because it had been told she was in breach of her employment terms. The company also wrote to the claimants' line manager and asked them to confirm that they would immediately ask her to stop targeting LCA's clients. 

The claimant's contract did not contain any restrictive covenants and the company knew that its allegations were untrue. The court saw evidence between the company and its employment law consultant which said: “obviously we haven't got the restrictions in place, but hopefully, you know, they're not going to know that are they?” That's a rare example of an evidential “smoking gun”! 

The claimant took proceedings against LCA and its owner for libel, slander and malicious falsehood and sought damages.  

Decision of the Supreme Court

By the time the matter came before the Supreme Court, the only issue to determine was whether the claimant could bring a malicious falsehood claim even though she had not suffered any financial losses. 

The Supreme Court found that individuals can bring claims of malicious falsehood provided they can establish that the words used are likely to cause financial loss even if, in fact, they haven't suffered any losses. That is judged at the date of publication. There is a presumption that financial loss has occurred, but no presumption about the amount of the loss. 

In this case, the claimant could only recover nominal damages because she had not lost her job and the client had decided to stay with LCA anyway.

The Supreme Court also considered if the claimant should receive an injury to feelings award. It decided that, unlike in discrimination claims under the Equality Act 2010, the claimant could only recover these if she had suffered financial loss. Emotional wellbeing is not protected. That's because malicious falsehood claims are economic torts. 

If the claimant had lost her job she would have been able to recover injury to feelings for the distress and hurt caused by, for example, the loss of her salary as well as substantive damages for her actual losses.

Lessons for other employers

It is very unusual for employees to sue their former employers in this way. That aside, it provides a salutary lesson for other employers: don't threaten what you know you can't do.

Once an employee has left the business, you will not be able to prevent them from poaching your staff, stealing your clients or setting up in business next door unless you have set out relevant restrictive covenants in their contact of employment. Restrictive covenants won't usually be implied - they need to be expressly set out, agreed to and clear. 

Restrictive covenants are only enforceable to the extent that they are reasonable; there's a huge volume of case-law which shapes how different types of restrictions are likely to be interpreted by a court. The key point to remember is that provided you have included restrictions which you believe to be enforceable (on reasonable grounds) you can send out threatening letters of the type referred to here. Even if it turns out that you are wrong and the restrictions aren't enforceable (which ultimately will have to be determined by a court) your employee will not be able to successfully argue that you have defamed them. 

Need advice?

Please speak to Georgie Collins or Elaine Huttley. We can help you draft suitable restrictive covenants tailored to your staff; defend or enforce restrictive covenants and advise you in respect of defamation claims.

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