Restricting employees – may be enforced… as long as the stars align
News    ·   09-06-2017
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AUTHOR: Ron Galea Cavallazzi, Marisa Vella, Edward Mizzi

In certain circumstances it may be seen as an important consideration by an employer to impose post-termination obligations and restrictions on its employees. There is no legislation in Malta which specifically deals with this and cases on the matter are limited, mainly because such obligations in contract are either used as deterrents or, where they are actually sought to be enforced, the matter is settled before a decision is given by the Court.

The point of departure is that post-termination clauses restricting an ex-employee’s freedom to work are generally void on the basis that they are in restraint of trade; however they may be legitimate if they are reasonable.

The threshold of reasonableness would be satisfied where the legitimate interests of the employer and of the employee are protected and the restraint clause is not wider than necessary to achieve the protection required. Maltese Courts and Tribunals have mostly looked to their English counter-parts and authors on the matter and parallels have also been drawn to Italian and other continental jurisdictions. The underlying principle is that an employee should be compensated to a level commensurate with the restraint imposed.

There is still no certainty as to the enforceability or otherwise of these provisions in Malta, but if drafted properly and carefully, an employer could increase its chances of successfully enforcing the restrictions. Primarily, such restrictions would need to be limited in terms of scope, duration as well as geographical area – all of which ought to be reasonable and justifiable. Also, it would seem that enforcing such a clause against an employee in a more senior position rather than one who would not be privy to sensitive company information is more likely to be acceptable. 

The question is: when and with respect to what may an ex-employer restrict a former employee?

Norman Selwyn, an English author who is often looked to and quoted by our courts and tribunals, has specifically stated that an employer is entitled limited protection in respect of four legitimate interests, namely

  1. trade secrets and confidential information;
  2. existing customers and connections;
  3. working for competitors; and
  4. enticing existing employees.

Clearly, the extent of such ‘limited protection’ would invariably depend on the factual circumstances. 

In a recent decision - Cutrico Services Ltd vs Josef Penza - delivered by the First Hall of the Civil Court on 23rd February 2017, the Court took an approach based on competition law principles. The facts were as follows: an employee was prohibited from soliciting, interfering or endeavouring to entice away from his employer any person, firm or company who were customers of or in the habit of dealing with the employer (Cutrico Services Ltd). Following termination, the individual carried out work for a client of the employer, despite the post-termination restriction.  

The employer felt that, in carrying out work for one of its clients, the former employee had breached his contractual obligations and proceeded to initiate legal proceedings for damages against Penza. Penza contested the validity of the restrictions and argued that they restricted free trade and the free movement of work and employees going contrary to the spirit of EU law. In quoting English doctrine, the Court observed that such a restriction should be limited to customers with whom the ex-employee had contact with, otherwise the likelihood is that the restraint would be perceived as designed to prevent competition.

Based on this line of reasoning, the court held that it is incumbent upon the employer to ensure the applicability of a post-termination restriction by specifying that such a clause would only apply with respect to clients with whom the employee has had dealings with on behalf of the employer. In this case, the post-termination restriction extended to also include customers of the employer with whom the former employee had no dealings or contact with during his employment and the Court held that due to its vagueness and, therefore, contradiction to the principles of competition, it was without effect as it sought to go beyond the legitimate protection that the employer could reasonably expect to have.

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