In a cautionary tale for employers, the High Court of Ireland held in Ryanair DAC v. Bellew that although Ryanair DAC’s post-employment noncompete clause was justified given the nature of the strategic role of chief operations officer (COO), the scope of this clause (which covered all airlines in any capacity) was too wide; therefore, the clause is void.
Ryanair’s former COO, Peter Bellew, held “one of the most senior executive roles in Ryanair.” He entered into a post-employment noncompete clause with Ryanair in consideration for participation in Ryanair’s share option scheme. The noncompete clause provided that Bellew would not 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” for 12 months following his departure.
Bellew resigned from Ryanair in July 2019 and was due to join EasyJet Switzerland SA (easyJet) as COO on January 1, 2020. Ryanair commenced injunctive proceedings to prevent Bellew from joining easyJet until the noncompete period had elapsed.
Ryanair asserted that Bellew was privy to “confidential material and sensitive commercial and operational information,” and that Ryanair would be “exposed to irremediable and unquantifiable loss and damage” if Bellew were to commence employment with easyJet. Bellew argued that the restraint Ryanair sought to impose was “wholly unnecessary, unreasonable and unwarranted.”
The High Court’s Findings
Addressing the crucial issue of the enforceability of the restraint, the court confirmed that any restraint on a person working is “by definition a restraint of trade,” and that such a restraint is void and unenforceable unless it is reasonable as between the parties and it is consistent with the public interest.
The court ultimately agreed that the “nature and extent of the confidential information that would inevitably come to the knowledge of Mr. Bellew in the course of his employment” justified a post-employment restraint. Of some relief to employers, the court stated that it had “no difficulty with the time constraint” of 12 months. However, the court said that it was “vexed” as to whether the restraint went “further than is necessary for the legitimate protection of Ryanair’s interest.”
Ryanair argued that while it was in competition with all airlines, the main competition it faced was not from legacy airlines (i.e., high-cost airlines), but from low-cost carriers, of which easyJet was its “most immediate rival.” However, from the court’s perspective, the restraint applied to any business in competition with Ryanair for air services, including the legacy airlines. It also applied to any job that Bellew might take with a competitor, not just a similar role.
Fatally, the court found that the restrictive covenant was too wide and consequently “void and unenforceable as an unjustified restraint of trade.”
So what can employers do to bolster the enforceability of their restrictive covenants?
There is a delicate balance to be struck between a reasonable and justifiable restrictive covenant and a restraint designed simply to “hobble” an employee in the “legitimate pursuit of his career.”
In an effort to strike this balance, employers may want to be wary of overreliance on boilerplate restrictive covenants. It is vital that restrictions are tailored to each employee, taking into account his or her seniority and level of access to confidential information, and go no further than absolutely necessary to protect the employer’s legitimate interests. Employers may also want to review their restrictive covenants often to reflect the changing life cycle of an employee (e.g., following a promotion).
Written by Ailbhe Dennehy and Therese Chambers of William Fry and Roger James of Ogletree Deakins
© 2020 William Fry and Ogletree, Deakins, Nash, Smoak & Stewart, P.C.