Introduction

The within judgment is the culmination of an eight-day trial in the High Court before Allen J in December 2019 further to an application by Ryanair Limited (as it then was) (‘the Company’) for an order of specific performance of Mr Peter Bellew’s (‘the Defendant’) contract of employment - specifically the post-employment restrictive covenants therein -and an injunction preventing him from commencing employment with a rival airline, easyJet, for a period of twelve months post the termination of his employment with the Company. The Defendant was employed as the Company’s Chief Operations Officer (‘COO’) until his resignation took effect on 31 December 2019.

It is submitted that the Court’s analysis of the restrictive covenant in question and the application of the established case law in this area to the facts of the case did not yield any significant development of the applicable law in this jurisdiction. The hearing itself, however, was remarkable for its duration – a factor of the range of issues which the Defendant sought to canvass before the court, many of which, as the Court itself observed, did not go to the issue of the enforceability of the covenant at all - and the fierceness with which both sides contested the disputed issues.  In making the subsequent order for costs, Allen J remarked, for example, that the case was one that had been fought “tooth and nail by both sides”.  Having remarked in his costs ruling that the trial had become protracted as a result of the many additional issues raised by the Defendant to which the Company was obliged to respond, Allen J departed in his costs order from the standard approach of ‘costs following the event’ and fixed the Company with the Defendant’s costs for only two of the eight days of the trial.

The Defendant sought to resist the Company’s application on three grounds:

1. The restrictive covenant (which he accepted he had agreed to) was not binding because the quid pro quo (in the form of valuable share options in the Company) he had been promised in return for agreeing to the covenant had not materialised;
   
   
2. The covenant was void and unenforceable because the restraint was excessive;
   
   
3. If the covenant was found to be binding and enforceable, the Court ought to exercise its discretion not to enforce it having regard to the manner in which the Defendant’s employment came to be terminated.

The Court found against the Defendant’s claim that the covenant ceased to be binding on him as a consequence of the manner in which the Company’s Share Option Plan came to be applied to him.  The third ground of the defence effectively became redundant in light of the Court’s findings in relation to excessively broad scope of the restrictions the covenant, if upheld, would have imposed on the Defendant.  In particular, the Court did not find on the evidence that the Defendant had made out his claim that it would have been unreasonable to have expected him to continue working for Ryanair as a result of Mr O’Leary’s treatment of him from March 2019 onwards.  At paragraph 128 of the judgment, Allen J makes the following observations:

“In my judgment Mr. Bellew got a better offer from easyJet.  In deciding whether to take that offer or not I am sure that Mr. Bellew took into account the comparative demands which would likely be made of him and the management style of those he would be working with in easyJet, as well as the financial terms and conditions, but that is far short of the case he advanced that it would have been unreasonable to have expected that he would continue to work for Ryanair.”

The judgment in general is very critical of the Defendant’s version of key events and, and in particular it is critical of the lack of candour that characterised his engagement with easyJet in relation to whether or not his employment with the Company was subject to a restrictive covenant.  It is clear that the Court did not regard the Defendant as coming with entirely clean hands making it very unlikely that the Court would have exercised its equitable discretion in his favour, had it come to that.

Summary of the Facts

The Defendant had originally worked for the Company from 2006 until 2015. He then worked for Malaysian Airlines, initially as its COO and later as its CEO.  He was personally invited to return to the Company by its CEO, Mr Michael O’Leary, in late 2017 as its COO, a senior management role that was one level up from that at which he had worked previously for the Company.  He commenced in his new position on 1 December 2017.  He had a very broad range of responsibilities including pilot rostering, training and recruitment; maintenance and development of the Company’s base structure; engineering and safety; ground operations and customer handling.  The Defendant had a base salary of €550,000.00 per annum, a bonus of up to €500,000.00, a pension contribution plus various other benefits, including share options.

With effect from 2015, the Company had made the grant of share options conditional on the written agreement of each qualifying executive to a twelve-month post-employment restrictive covenant.  The Defendant had his first performance review as COO in March 2018.  This was a very positive review and resulted in the Defendant being invited to participate in an offer of share options for 2018.  The Company’s letter of offer in this regard provided that the consideration for the grant of the options was the Defendant’s agreement to the Company’s standard non-compete clause.  He was subsequently issued with a form of amendment to his contract which included the full text of a post-employment restrictions.  The Defendant signed and returned this on 20 June 2018.

Clauses 1.1 and 1.2 of the post-employment covenants provide as follows:

“1.1 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 on your own behalf or in conjunction with or on behalf of any other Person;

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.

1.2 If you receive an offer of employment or engagement during your employment with the Company, or before the expiry of the restriction period set out in this clause, you shall give the person or entity making the offer a copy of this clause.”

The Defendant had his second performance review with Mr O’Leary in March 2019.  The Defendant’s performance for the previous year was described as having been disappointing. Mr O’Leary listed a number of specific areas in which he expected the Defendant to ‘dramatically’ improve.  He also advised the Defendant that his suitability for the role of COO would be considered over the following six months.  The Defendant’s evidence was that he was approached less than a month later by a recruiter on behalf of easyJet.  The ensuing discussions over the following months culminated in easyJet offering the Defendant a position as its COO which he accepted in or around early July 2019.

The Defendant tendered his resignation to Mr O’Leary on 8 July 2019, citing reasons of stress and heavy workload.  As he was contractually required to give six months’ notice of termination, the Defendant proposed that his employment with the Company would cease from 8 January 2020.  Mr O’Leary wrote to the Defendant on the same day accepting his resignation ‘with regret’ and suggested that they agree a finish date of 31 December 2019, for reasons of mutual convenience.  On 17 July 2019, the Defendant telephoned Mr O’Leary to inform him that he had accepted a position with easyJet.  Mr O’Leary reminded him of the twelve-month post-employment restriction he had agreed and warned him that the Company would have to consider seeking an injunction were he to attempt to breach that covenant.  On 18 July, easyJet published its quarterly results and also made an announcement that the Defendant would be joining it as its new COO on 1 January 2020. The Company commenced proceedings by plenary summons issued on 6 August 2019.

The Court’s Consideration of the Restrictive Covenant

Paragraphs 130 to 212 inclusive of the judgment deal with the issue of the enforceability of the particular covenant addended to the Defendant’s employment contract on 20 June 2018 by way of consideration from him in return for his admission into the Company’s Share Option Scheme.  Paragraph 146 of the judgment neatly encapsulates the issues that fell to be determined by the Court with regard to the said restrictive covenant:

“The dispute between Ryanair and Mr. Bellew calls for the construction of the relevant clause and an assessment as to whether the restraint has been justified, and if it has, whether it has been shown not to be excessive in geographical scope or temporal limitation.”

Allen J firstly reviewed the caselaw opened to him on behalf of the Parties.  The Defendant’s lawyers submitted that the law on restrictive covenants in this jurisdiction is settled, seeking to relying in particular on Macken v O’Reilly [1979] ILRM 79 (O’Higgins CJ), Murgitroyd & Company Ltd v Purdy [2005] IEHC 159 (Clarke J, as he then was) and Net Affinity Ltd v Conaghan [2011] IEHC 160, [2012] 3 IR 67 (Dunne J).  On the other hand, lawyers for the Company urged the Court to consider recent caselaw developments in England, placing particular emphasis on a recent judgment of the United Kingdom Supreme Court in Tillman v Egon Zehnder Ltd [2019] UKSC 32.  Allen J found the latter judgment to have no direct relevance to the case before him.  Likewise, the Court observed that a number of other English cases opened on behalf of the Company (including Kynixa Ltd v Hynes [2008] EWHC 1495 and Brake Brothers Limited v Ungless [2004] EWHC 2799) were useful and comprehensive expositions of the law in relation to an employer’s legitimate interest in preserving the stability of its workforce but could ultimately be distinguished from the present case in which the focus was on determining whether the imposition of restraint on the Defendant was reasonable.

Before turning to the wording of the covenant in issue in this case, Allen J recited a number of key presumptions and principles established in the relevant case law:

• “The presumption is that post termination restraints are void and unenforceable, but they may in certain circumstances be justified if the purpose of the restraint is legitimate and if the restraint goes no further than is necessary to protect a legitimate interest and is, in all the circumstances, fair and reasonable.” (Par. 154)
• “[T]he onus is on the plaintiff to establish the legitimate purpose and to show that the restraint goes no further than is necessary.” (Par. 154)
• “[T]he time at which the court is to assess the justification for, and the reasonableness of, a restraint is the date of the contract.” (Par. 155)
• “[T]he enforceability of the restraint is to be judged by reference to what the employee agreed not to do, rather than what he or she proposes to do after the cessation of employment.” (Par. 156)

Having considered in some detail the extent of the commercially sensitive information that the Defendant was privy to in his role as COO of the company and arising from his weekly attendance at senior management meetings – all of which was accepted by the Defendant in his own evidence – the Court found that the Company had established sufficient justification for imposing a post-termination restraint on the Defendant.

The more difficult question which followed on this, however, required the Court to assess whether the restraint in this case went further than was necessary for the legitimate protection of the Company’s interests. Firstly, the Court found there was no difficulty with the stated duration of the covenant which it had been agreed would apply for twelve months post-termination.  The Court then moved to construe the meaning of the words in Clause 1.1 a. of the covenant that purported to prevent the Defendant from “be[ing] 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”.  Allen J found that the plain meaning of this element of the covenant was to restrict the subject of the covenant from so engaging will all European airlines, including both low-cost carriers and so-called legacy airlines.  Allen J further found that while the Company had “clearly demonstrated its interest in protecting its confidential information from disclosure to, or use by or on behalf of, its competitors in the low cost market”, he could not find that “it [had] demonstrated the same interest in relation to the legacy or flag or high cost airlines”. (Par. 193).  The Court, therefore, concluded that the commercial information to which the Defendant was privy was not sufficient justification for preventing him taking up employment with a legacy airline and for that reason the restraint was deemed to be too wide and, therefore, “void and unenforceable as an unjustified restraint of trade”. (Par. 193)

Allen J noted that he was also ‘troubled’ by the inclusion of the words “in any capacity” in the non-compete element of the covenant: “It appeared to me that literally construed it would restrain Mr Bellew from taking up employment with another airline as a pilot or air steward.” (Par 195).  The judge further found that the problems with this element of the covenant was compounded by the wording of clause 1.1.b – the non-solicitation provision - which limits the obligation not to entice away to persons employed in a senior executive, managerial or technical capacity.  Allen J expressed the view that “if the restraint on enticement is limited to particular capacities, the restraint on the employee taking up alternative employment in any capacity must go beyond the specified capacities”. (par. 203).  He concluded that reference to “in any capacity” in the restrictive covenant also rendered the covenant too wide and in that respect also meant that it was void and unenforceable as an unjustified restraint of trade.

Conclusion

At paragraph 133 of his judgment, Allen J refers with approval to Clarke J’s statement of the law in relation to restrictive covenants in this jurisdiction. Allen J quotes at length from Clarke J’s judgment in Murgitroyd & Company Ltd v Purdy [2005] IEHC 159, [2005] 3 I.R. 12. It is worthwhile reproducing the passage quoted from that judgment by Allen J as that part of the within judgment that considers the enforceability of the restrictive covenant in the Defendant’s contract of employment appears to be both a firm endorsement and straightforward application of Clarke J’s exposition of the relevant law:

“A restraint on a person working or being engaged in one or more lines of business is by definition a restraint of trade. It is well settled that such a term will not be enforced by the courts unless it meets a two fold test:-

a. it is reasonable as between the parties; and

b. it is consistent with the interests of the public.

see McEllistrim v. Ballymacelligott Co-operative Agricultural and Dairy Society [1919] A.C. 548 at p. 562.

In relation to the first test i.e. reasonableness inter parties, in the leading case of Stenhouse Ltd .v. Phillips [1974] A.C. 391, Lord Wilberforce said at p. 400:-

‘The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man’s improving ability and talents which lies at the root of the policy of the law regarding this type of restraint.  Leaving aside the case of misuse of trade secrets or confidential information … the employer’s claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.’

The test seems to be, therefore, as to whether in all the circumstances of the case both the nature of the restriction and its extent is reasonable to protect the goodwill of the employer.  Clearly certain clauses which preclude solicitation come within that definition provided that they are not excessively wide.  In certain other cases clauses have been upheld which have prohibited employees setting up a similar business within a specified distance of an employer’s establishment: see for example Marion White Ltd. v. Francis [1972] 1 W.L.R. 1423.  But it is clear that the duration of the prohibition and the geographical scope of same are important matters to be considered having regard to the nature of the work in question and the structure of the business.” (Paras. 15 to 17 of Clarke J’s judgment in Murgitroyd).

In conclusion, the within judgment does not alter the jurisprudence of the Irish courts in relation to post-employment restrictive covenants.  It remains the case that it is incumbent on an employer who seeks the assistance of the court to enforce such a covenant against a former employee to demonstrate that it has a legitimate interest in exacting a covenant from the employee in question and further demonstrating that the restrictions therein are reasonable, from both a temporal and geographical perspective, having regard to the legitimate interest the employer seeks to protect.

In this case, Allen J – applying the test in Murgatroyd - found that the restraints which the Company’s standard post-employment restrictive covenant purported to apply to the Defendant went far beyond what the Company had shown to be justified.

post-employment restrictive covenant

https://www.bailii.org/ie/cases/IEHC/2019/2019IEHC907.html