Triona Cody

The widely publicised, multijurisdictional legal proceedings between the international software company Rippling and its rival workforce management platform provider, Deel, Inc., alleged theft of trade secrets and corporate espionage.

Rippling commenced High Court proceedings in Ireland against a former Rippling employee and alleged spy of Deel, Inc. This case illustrates the role of restrictive covenants in safeguarding an organisation’s confidential information, competitive position and legal interests.

While the matter has yet to be determined by the Court, the former Rippling employee provided direct evidence of acting as an informant for Deel, Inc., supplying confidential information, trade secrets, and customer details in exchange for payment, while still employed by Rippling. The former employee’s evidence, which is denied by Deel, is that they deliberately breached their restrictive covenants for financial gain using covert communications with Deel, Inc.

What are restrictive covenants?

Restrictive covenants are contractual clauses that limit the actions an individual may take during and after their employment with an organisation. Their purpose is to protect the employer’s legitimate business interests, including confidential information, competitive advantage, client and employee relationships.

Examples of restrictive covenants

Common restrictive covenant clauses in employment contracts include:

• Non-solicitation, which prohibits former employees from soliciting clients, customers or prospective clients of their previous employer.
• Non-compete, which prevents former employees from working for a competitor or establishing a competing business for a specified period and within a defined geographic area.
• Non-poaching, which prohibits former employees from recruiting or hiring the employees of their previous employer.
• Non-dealing, which prevents former employees from dealing with clients of their previous employer, even if the client initiates contact.
• Confidentiality, which prohibits the disclosure of confidential information or trade secrets.
• Garden leave, which requires an employee not to attend work during the notice period.

Enforceability of restrictive covenants

In Ireland, the constitutional right to earn a livelihood makes restrictive covenants particularly difficult to enforce. Any restrictions must balance the employer’s legitimate business interests and the employee’s right to work and earn a living.

The Irish courts will only enforce restrictive covenants if they protect a legitimate business interest and are no broader than is reasonably necessary. Blanket restrictions that apply to all employees may be considered overly broad and are likely not to be upheld. Covenants should be carefully tailored to the employee’s specific role, responsibilities and access to confidential information.

To maximise enforceability, employers should consider the following when drafting restrictive covenants:

• The employee’s role.
• Limiting the geographical scope of the restrictions to relevant regions.
• Ensuring the duration of restrictions is no longer than necessary.
• Restricting only those activities and business areas in which the employee is directly involved.
• Limiting the non-compete clause to clients or suppliers with whom the employee has direct dealings.

Remedies in the event of a breach

If an employer believes that an employee or former employee is in breach of their restrictive covenants, the primary legal remedy is to seek an injunction to prevent further breaches, such as stopping an employee from joining a competitor or soliciting clients.

Employers may also use a garden leave provision in the employment contract, requiring the employee to remain employed but not perform duties or contact clients during the notice period, thereby limiting the employee’s ability to compete.

Practical guidance for employers

Employers should:

• Avoid blanket restrictions on all employees.
• Regularly review and update employment contracts to ensure restrictive covenants are appropriate as employee roles and business needs evolve.
• Act promptly if a breach is suspected to mitigate potential reputational, financial, or operational harm.
• Draft restrictive covenants which are tailored and specific to each employee.
• Limit the scope and duration of restrictive covenants to what is reasonably necessary.

• Triona Cody is a partner in Kane Tuohy’s employment and litigation department. Kate Farrelly assisted in the writing of this article.