Firm halts progress of family who set up rival business

A firm that bought a clothing business from a group of family members has won a court injunction to prevent them setting up in competition.

The court heard that the family had sold their business for a substantial sum. The new owners employed the family members under contracts containing restrictive covenants preventing them setting up a rival business while still employed or for 12 months after resigning.

All the family members then resigned shortly after the takeover.

The new owners alleged they breached the covenants by creating a competing business while still employed, soliciting other employees and customers, and using confidential information.

The court found in favour of the new owners. It said they had presented a strong case that the family had been building up a new competitive company while still in employment, had made use of connections with customers, suppliers and employees, and of confidential information to secure orders.

It granted an interim injunction enforcing the covenants until the issues could be dealt with at a full trial.

The court also granted the new owners springboard relief. This is an injunction that prevents an employee gaining an unfair advantage or head start by abusing his employer’s trust and resources while secretly setting up a rival business.

The order is designed to leave the employee in the same position he would have been in if he had resigned and obeyed the terms of his contract before setting up a new business.

Please contact Sing Li if you would like more information about the issues raised in this article or any aspect of restrictive covenants and protecting your business.