Ryanair DAC v Peter Bellew [2019] IEHC 907  

The High Court finds restrictive covenant too wide and is deemed “void and unenforceable as an unjustified restraint of trade.” 

Background

In October, 2017, Mr. Peter Bellow (the “Employee”) was employed as Chief Operations Officer (“COO”) of Ryanair Limited [1], (the “Employer”). The Employee previously worked for the Employer from 2006 to 2015. By way of letter dated 27 April 2018, the Employee was invited to participate in an offer of share options subject to the Employee agreeing not to work for any airline which competes with the Employer for twelve months after termination of his employment. On 20 June 2018, the Employee signed an amendment to his employment contract, which stated:

 "For a period of 12 months after the termination of your employment you shall not, without the prior written consent of the Company, directly or indirectly in any capacity either… 

a. 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;

 b. solicit or entice or endeavour to solicit or entice away from the Company any person who was employed within in (sic.) a senior executive, managerial, or technical capacity by the Company.” 

On 8 July 2019, the Employee resigned and subsequently informed the Employer that he had accepted an offer of employment as COO with the Employer’s competitor, easyJet.

High Court Application  

In August 2019, the Employer made an application to the High Court seeking an order compelling the Employee to comply with the post termination restrictions and an injunction prohibiting him from acting contrary to the post termination restrictions and in particular, from commencing employment with easyJet for a period of twelve months post termination of his contract. In this regard, the Employer argued that as senior executive, the Employee was privy to confidential material and sensitive commercial and operational information in relation to the past and future business of the Employer, which would expose the Employer to irremediable and unquantifiable loss and damage should the Employee commence employment with easyJet. In addition, the Employee had failed to inform easyJet of his post termination restrictions or provide it with a copy of those restrictions as required under the amended contract of employment.

In response, the Employee argued that the covenant was not binding and should be declared void and unenforceable on the basis that the restraint was “unnecessary, unreasonable and unwarranted”  for the purpose of ensuring the Employer’s obligations of confidentiality.

High Court Decision

In dismissing the action, Mr Justice Allen held that while the Employer had discharged the onus of proving that it had a legitimate interest in exacting the covenant to protect the valuable confidential information, the covenant went beyond what the Employer demonstrated as justified in the circumstances.

Interestingly, the Court stated it had no difficulty with the time constraint of twelve months, which was justified by the likely useful life of the confidential commercial information that would come to the Employee’s knowledge. However, by preventing the Employee from taking up employment with any European airline, including high cost legacy carriers, the covenant constituted an unjustified restraint on trade.

Furthermore, Justice Allen found that the prohibition on employment in any business in competition with the Employer “in any capacity” particularly troubling and that literally construed, it would restrain the Employee from taking up employment with another airline as a pilot or air steward. The legitimate interest of the Employer in restraining the Employee from taking up alternative employment is limited to roles which would risk the disclosure or use of its protectable information. Accordingly, the restraint on employment in any capacity went beyond that interest and the covenant was deemed void and unenforceable.

A Considered Approach

To reduce the potential risk of arguments about enforceability, restrictive covenants must be tailored and framed appropriately to the specific employee. Where an employer does not carefully consider the literal meaning and impact of a restrictive covenant, in respect of the precise role of the employee, there is a risk that the entire restriction may be considered an unreasonable restraint on trade with no commercial effect. Employers should ensure that such clauses are reviewed from time to time and in accordance with the development of the organisation to avoid such clauses becoming obsolete.

This case serves as an important reminder that employers should carefully consider the intention and drafting of all restrictions on a case by case basis.

Our Employment Team has extensive experience in advising employers in respect of post termination restrictions, including drafting, reviewing and negotiating restrictive covenants and confidentiality clauses for all types of employment. For more information, please contact Bláthnaid Evans or Sheila Spokes on +353 1 639 3000 or visit www.leman.ie

[1] Currently known as Ryanair DAC