After the Ryanair -v – Belew case are restrictive covenants effective?
23 July 2020
Many Irish employers continue to include restrictive covenants in their contracts of employment, particularly for senior executives. These can often be drafted in generic terms and do not specifically address the business interests which require protection. The effectiveness of such covenants was recently called into question in the case of Ryanair v Bellew1.
Ryanair sought to enforce a restrictive covenant contained in a contract of employment with its Chief Operations Officer, Mr Peter Bellew. Having been recruited in October 2017 for the position of Chief Operations Officer, Mr Bellew’s relationship with Ryanair’s then CEO, Mr Michael O’Leary, became fraught and in July 2019, Mr Bellew resigned from his position with Ryanair. He subsequently secured a new role as a Chief Operations Officer for easyJet which is a direct competitor of Ryanair. The restrictive covenant contained in Mr Bellew’s original contract of employment with Ryanair restricted him from working for a period of 12 months directly or indirectly in any capacity for any business that was wholly or partly in competition with Ryanair.
While the court took the view that Ryanair had a legitimate interest in protecting its confidential information due to its commercial, operational and financial nature, the court ultimately decided that the restrictive covenant was too broadly drafted. The court determined that Ryanair could not prevent Mr Bellew from taking up a position, in any capacity, in what are known as legacy or high cost airlines. It appears that the court believed that Mr Bellew should be entitled to take up for example a senior role, or for example an entirely different role such as that of a pilot.
When the courts are examining the enforceability of restrictive covenants, the court must balance, on the one hand, the rights of an employer which may be seeking to legitimately protect its business and a former employee’s right to earn a livelihood.
To ensure that employers have the best chance of enforcing restrictive covenants, an employee’s contract of employment should contain an express clause setting out the terms of the restrictive covenant which must be both reasonable in terms of length, the scope of the restriction, the geographical reach of the proposed restriction and its duration. It is important to note that any restrictive covenant contrary to public policy will automatically be unenforceable.
In light of this decision, it is imperative that employers consider carefully what legitimate interests they wish to protect and whether such restrictive covenants were drafted in a reasonable and narrow manner. It would also be prudent to continually review restrictive covenants contained in employees’ contracts of employment and in particular when an employee successfully obtains a promotion which may enable the employee to have access to sensitive confidential information.
1 Ryanair v Bellew [2019 No.6239P]