REUTERS | Russell Cheyne

Enforcing restrictive covenants in Scotland: Dabble if you dare!

Many Scottish employment lawyers advise on employment law in England & Wales, and many English practitioners deal with cases north of the border. The majority of employment laws are based on UK-wide legislation so provided that the representative is aware of the areas of differences, especially when it comes to tribunal procedure, this doesn’t pose too much of a problem. However, certain issues and areas of law, particularly those based on the common law, have a distinct Scottish perspective and can pose a real risk for English lawyers dipping their toes into an unfamiliar jurisdiction. One of these risk areas is the enforcement of restrictive covenants.

Interpretation and Enforceability

Happily, the law relating to the interpretation and enforceability of restrictive covenants is broadly similar in Scotland and England. The approach that a Scottish court will adopt to decide whether a restrictive covenant is valid and reasonable is similar to that adopted by its English counterparts. In fact Scots law ‘borrowed’ much from English case law when the doctrine of restraint of trade became incorporated into Scots law in the mid nineteenth century. It is therefore not uncommon for English cases to be cited in the Scottish courts and vice versa.
One key difference, however, is that there is no need for consideration for restrictive covenants to be enforceable in Scotland, which can be an area of dispute in England where covenants are introduced during the employment relationship.

The test for obtaining an interim interdict (similar to an interim injunction) also differs in certain key respects. Practitioners in England and Wales cannot therefore safely assume that the likelihood of obtaining an interim injunction in England reflects the likelihood of obtaining an interim interdict in Scotland.

Interim Interdicts: The Two Stage Test

In Scotland, there is a two stage test that is relevant in any interim interdict proceedings:

  • Has a prima facie case been made out?
  • Where does the balance of convenience lie?

Prima facie case

In practice, establishing a prima facie case involves:

  • Identifying the restrictive covenants and the relevant contractual provisions.
  • Establishing that they are reasonable in scope and duration.
  • Presenting evidence of a breach or an intention to breach the restrictions, and the harm that may be done to the former employer if the interim interdict is not granted. There is usually some investigation into the merits of the case (albeit not a full exploration) at this interim stage.

As I have explained below, many interim interdict cases in Scotland are ex parte meaning that the defender does not receive notice of the application and therefore does not have the opportunity to present opposition to it.  In cases where the defender has lodged caveats (see “The Process” section below) and is therefore involved in proceedings at the interim application stage, there will be some consideration of the defence at this point.

The balance of convenience

The ‘balance of convenience’ involves asking which party will be most prejudiced if the court decides to grant or not to grant the interim interdict (having regard to all the facts of the case considered at the first stage). In cases where the factors are evenly balanced, the court is likely to make an order preserving the status quo.

In England, interim injunction cases are decided on the basis of the principles in American Cyanamid Co v Ethicon Limited 1975 AC 396. Once the party seeking to enforce has demonstrated that there is a serious issue to be tried and whether damages would be an adequate remedy, the case depends on the balance of convenience (and only as a last resort will the strengths of a case be considered).

In Scotland, the different approach allows for more examination of the substantive issues at the interim stage– this has been described as a ‘merits test in diluted form’. Whichever party you represent, it is crucial to have robust evidence to hand.  From an employee’s perspective it can be helpful to gather the following evidence, insofar as possible given the very tight deadlines involved:

  • Evidence to challenge the enforceability of the covenants.
  • Evidence to challenge the former employer’s evidence of the breach, where applicable.
  • Evidence to show that the precise terms of the interim interdict sought do not ‘match’ the restrictions in the employee’s contract.

Interim Interdicts: The Process

In the highly pressurised context of interim proceedings it is procedural differences that are more likely to trip up unwary English practitioners than differences in the legal test.

Firstly, Scotland offers a choice of courts for the enforcement of post-termination restrictions. An action for interim interdict can be raised in the Sheriff Court or in the Court of Session – and consideration needs to be given as to the appropriate forum.

Secondly, a crucial note of caution for employee representatives: don’t assume you will automatically be informed by the court if an application for an interim interdict has been made against your client. Ex parte hearings are very rare in England but common in Scotland in this context. Unless, you have lodged a pre-emptive ‘caveat’ at court the employer’s application will usually be heard in the absence of the employee and potentially without them even having notice that the application has been made and the case has called.

A caveat is a document which entitles a party to be informed when any interim applications are made.  A failure to advise an employee client accused of breach restrictive covenants to obtain appropriate caveats could result in a negligence claim against the representative as it could potentially deprive the client of the opportunity of defending the application for interim interdict.  With this risk in mind, employee representatives in this context need to think ahead to potential court proceedings as soon as the first pre-litigation correspondence on a restrictive covenant issue lands in their inbox.

All is not lost though if you are caught by surprise. A grant of interim interdict can be recalled if a ‘motion’ (broadly equivalent to an application notice) is lodged by the affected party.  A further hearing will be held to take into account any objections from the employee or any change in circumstances.

Bear in mind too that, at least in interim interdict proceedings, the wheels of the law turn faster north of the border. While under the English process the parties are likely to receive a few days notice of the hearing, in Scotland you may be alerted as little as 24 hours before, even where caveats have been lodged. Employee representatives may not have the luxury of time to prepare.

In any jurisdiction, and whichever party you act for, interim proceedings to enforce restrictive covenants are stressful. Juggling settlement negotiations while preparing for a short-notice hearing is challenging, costs mount up incredibly quickly and the stakes are often high. It is understandably tempting for employment lawyers in England and Wales who have become comfortable with advising on employment tribunal, HR and employee relations matters and corporate transactions in Scotland to assume that restrictive covenant enforcement can be approached with the same confidence.  However, given the significant differences in court process, the speed with which proceedings progress and the different test for the grant of an interim interdict in Scotland, it really is a case of dabble if you dare.

Weightmans Elaine Mcllroy

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