HP poaching row shows limits of employment law

THE business world continues to monitor with interest what appears to be a growing rift between technology giants Oracle and Hewlett Packard (HP), competitors who have until recently enjoyed a relationship of cooperation and collaboration. The apparent animosity arises out of Oracle’s decision to appoint to its board former HP CEO, Mark Hurd, only a few weeks after he left HP amid various allegations of inappropriate conduct.

Within 24 hours of Hurd’s appointment being announced, HP launched a law-suit in the Californian courts seeking to prevent it, ostensibly on the grounds that his proposed position on the Oracle board made it inevitable that he would disclose HP’s trade secrets, thereby causing significant damage to HP’s business.

Both Hurd and Oracle are perhaps fortunate that they are based in California, widely regarded to be the US state in which the courts are least likely to interfere with an employee’s fundamental right to change jobs. Specifically, and unlike most other states, the Californian courts will not as a general rule uphold any post-termination restrictive covenants of the sort common in UK-based executives’ service agreements (which, for example, may seek to prevent an employee from working for a competitor for a fixed period following their departure) unless those restrictions were issued in connection with the sale of a business. Accordingly, it appears to be the view of most US legal commentators that HP’s legal action will only succeed if HP can show Hurd has knowledge of trade secrets relating to specific technical know-how, as opposed to the knowledge of HP’s business plans and structure that, as CEO, he will inevitably be aware of.

Were Hurd based in the UK, the legal position would be somewhat different. Although, as a matter of public policy, the courts approach any attempt to restrict an individual’s employment opportunities as an unlawful restraint of trade, unlike their Californian counterparts a UK court will uphold restrictive covenants contained in an individual’s employment contract provided it is satisfied that those restrictions are reasonable and necessary to protect an employer’s legitimate business interests.

With a range of potential options open to an employer, from a blanket ban on competition to preventing the poaching of specific customers or other employees, the question of what is “reasonable and necessary” is judged on the facts of each case, and has, perhaps not surprisingly, proved fertile ground for employment lawyers. It is however possible to distil particular judicial trends which all employers would do well to heed. Primary among these is the court’s requirement that any restriction be sufficiently personalised to an individual’s role to provide targeted protection to the employer that goes no wider than is genuinely necessary. So, for example, a restriction seeking to prevent the poaching of all of an employer’s customers is unlikely to be enforceable, but one that is limited only to those customers with whom the employee had substantial dealings may be.

As a general rule, if the court concludes that a restriction is unreasonably wide, it will not
amend it in a way that makes it more palatable, but instead will disregard it entirely. An employer is therefore better advised to include in its employment contracts relatively narrow restrictions that give it some comfort as opposed to more wide ranging restrictions that the courts will not enforce.

In the absence of any express restrictive covenants on which to rely, the UK position is not all that different to the one faced by HP in California: there will be a need to demonstrate that abuse of trade secrets and/or highly confidential information has occurred or is inevitable. In practice, this presents an evidential hurdle that few employers in positions such as HP can surmount.

Against this backdrop, the current dispute between Oracle and HP and the potential
damage that Hurd’s change of employer could cause to the latter’s business represents a
salutary reminder to UK employers of the need to ensure that its key employees are subject to appropriate and legally enforceable contractual provisions that will restrict their competitive activities after their employment comes to an end.