Bellew case should spur review of restrictive covenants

Out-Law News | 03 Jan 2020 | 2:26 pm | 2 min. read

A recent ruling in a case involving a former senior executive at Ryanair should spur employers to review their use of restrictive covenants in contracts of employment, a specialist in employment law has said.

Ciara Ruane of Pinsent Masons, the law firm behind Out-Law, was commenting after the High Court in Ireland ruled that Ryanair could not enforce a restrictive covenant clause in the contract of its former chief operating officer, Peter Bellew.

A restrictive covenant is typically a clause in a contract which prohibits an employee from competing with his ex-employer for a certain period after the employee has left the business, or prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained during his prior employment. Many employers include these clauses in the contracts of employment of senior or highly skilled staff at the commencement of the employment relationship to deter employees from joining competitors or ward off potential new employers. 

Bellew served as Ryanair's chief operating officer, but announced in July last year that he would leave the company at the end of 2019. Ryanair took legal action against Bellew after it was subsequently confirmed that he is to take up a new job with rival budget airline Easyjet.

According to the Irish Times, however, Ryanair lost its legal challenge against Bellew shortly before Christmas. Ryanair is to appeal the ruling.

The Irish Times reported that the restrictive covenant that Bellew was subject to constrained him from working for another European airline business for 12 months from the point his employment at Ryanair was terminated. The High Court ruled that such a broad clause was not justified in this case and was therefore void, the report said.

According to the newspaper, the court found that Bellew knowingly signed up to the restrictive covenant clause in his contract and that Ryanair did have legitimate interest in constraining Bellew from taking up new roles with other employers where there was a risk that commercially sensitive information would be disclosed or used. However, it said Ryanair had failed to show that those interests extend beyond airlines operating in direct competition to it in the low cost and low fares market.

Ruane said that certain restrictive clauses that employers have incorporated into employee contracts that aim to restrict the employee from doing certain things after they terminate employment might no longer be enforceable in light of the judgment.

Ruane said: "Employers should review their employee contracts and ask themselves do they need to impose restrictive covenants on their employees in the first instance. If you feel that a restrictive covenant is necessary due the employee's seniority and/or duties you should ensure that it is not broader than is necessary to protect the reasonable interests of the business."

"This case highlights that courts are reluctant to enforce a restrictive covenant where it is excessive in terms of duration, geography, or products and services to be protected, so tailoring a restrictive covenant to the actual business needs of the company is a must," she said.