The possibility of an immediate costs order on an interlocutory injunction application to enforce restrictive covenants against a former employee, has for some time been a material factor. Whilst an employer may not need the financial injection from such a costs order, the threat to an individual of being on the receiving end of a costs order can be a key deterrent.
The courts have been prepared to award costs if they have decided to grant the injunction on the balance of convenience until trial. As anyone involved in enforcing restrictive covenants knows, the cases rarely go to trial; the injunction is the goal. The employer in those circumstances is successful on that application, hence the ability to apply for costs.
However, the balance may have changed following last month’s case of Digby the Melford Capital  EWCA Civ1647, in the Court of appeal, (CA) The CA delivered a judgment which firmly sways the position in favour of costs being reserved to the final trial in a move which is favourable to defendant ex-employees.
Deciding upon the facts described at first instance as hotly disputed, the CA concluded that where an interim injunction is granted by a court, the court should normally reserve the costs of the application until the end of the trial.
The Court of Appeal did say that the Court’s hands were not tied, so if any former employee has been particularly obstructive when reasonable approaches have been made concerning potential breaches of restrictive covenants, there may still be an opportunity to apply for costs. However, this case means that advisors acting for ex-employees will be able to point to the fact that whilst they will have to bear their own costs in defending any injunction application, they will now be unlikely to be burdened with the costs of their former employer even when the injunction is granted.
This may serve to embolden ex-employees as may the fact that may businesses are no longer as financially secure as they may have been before the 2020 pandemic which has seen so many fall into the insolvency process. There may be more challenge to a business giving an undertaking that it is good for the damages, to an ex-employee should the court impose an injunction on the individual which a trial Judge eventually disagrees with.
Whilst this should not deter any employers from taking appropriate action against former employees blatantly breaching legally enforceable restrictions, it may mean more actual applications to court rather than resolution prior to proceeding by way of undertaking against the threat of proceedings. It makes it more important that you ensure that, if it is appropriate for your business, you have restrictions against employees who could damage it which are well drafted and kept up to date and that appropriate and reasonable steps are taken to warn an ex-employee of your intended reasonable and proportional action to enforce them to preserve the chance of seeking a costs order.
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