Clauses in employment contracts on nonsolicitation of clients may be enforceable

In the case of AIS Environment Ltd vs EC, the First Hall Civil Court (the “Court”), presided over by the Honourable Judge Lawrence Mintoff, on 16 September 2019, enforced a non-competition clause against an employee who had resigned from his employment and provided services to a client of his previous employer.

AIS Environment Ltd (the “Company”) had engaged the EC (the “Defendant”) as an archaeologist on a full-time basis with the Company pursuant to a contract of employment dated the 1 November 2011. The Company had invested heavily in the archaeological department, of which the Defendant became head, and for this reason, in the Defendant’s contract of employment, the Company included a non-competition and a non-solicitation clause. This clause stated that for a period of two years from the termination of employment, the Defendant was precluded from soliciting, communicating, employing, contacting or carrying out any business deals in the widest sense, whether alone or with any other person or entity, either directly or indirectly, with any customers of the Company anywhere in Malta or Gozo. Pre-liquidated damages of €18,000 was preagreed should the Defendant fail to adhere to this non-competition clause.

The Company won a tender to carry out monitoring of archaeological findings in connection with the refurbishment of the Coast Road from Malta Transport

Authority (“MTA”) and the Defendant was involved in this tender. In the first week of October 2014, the Defendant resigned from his employment with the Company and informed the Company that his last day of employment was going to be the 31 October 2014. Following the Defendant’s resignation, it transpired that the Defendant had registered a company within three days after his last day of employment, and was offering the same services of archaeological monitoring to the MTA. The Company argued that the MTA was an important client, and that the Defendant had breached the agreed terms of his contract of employment.

As a result of the Defendant’s actions, the Company filed a civil lawsuit for breach of contract. On the other hand, the Defendant argued that the penalty clause outlined in the contract of employment was to be considered null and void since it infringed the Employment and

Industrial Relations Act and the Civil Code. In addition to this, the Defendant also argued that the non-competition and non-solicitation clause was to be considered a restraint of trade since his line of work was extremely specialised and required him to work in the same industry. He also argued that he did not cause the Company any damages.

In its judgement the Court noted that the parties had collaborated for many years, since first the Defendant was engaged as a freelancer and later, he was employed with the Company. The Court also concluded that given the Defendant’s expertise, he should have no problem in finding a project other than the one he was already working on. The Court further noted that since the Defendant had accepted a two-year non-compete clause, it was his responsibility to determine which engagements to accept and which to refuse. The Court also noted that the Defendant started collaborating with the MTA within three days of the termination of his employment with the Company, by registering a company in his name and by providing a quotation to the MTA to work on a project which up to his resignation, he had been working on via the plaintiff Company. It also went on to quash the ex-employee’s claim that the non-compete clause was to be deemed a restraint of trade and considered the inclusion of such a clause to be reasonable and necessary especially when taking into consideration that the clause in discussion incorporated a twoyear time period through which the Defendant was not permitted to solicit the Company’s clients.

The Court also pointed out that from the evidence it transpired that, in all probability, for the Defendant to give a quotation to the MTA he had made use of insider knowledge which he had gained through his employment with the plaintiff Company. Whilst the Court appreciated that the market which the Defendant provided his services to was specialized, it also concluded that there was no need for the Defendant to work on the same project which he had been working on prior to resigning from the Company.

The Court was also assertive on the fact that the Defendant had been given enough time to seek legal advice on the nature and meaning of the non-compete clause found within the contract of employment. The Court therefore concluded that through offering his service to the MTA, the Defendant had violated the noncompete clause established in the employment contract entered between the parties. Moreover, the Court added that such actions were contrary to any ethical expectations and that this was to be deemed a conflict of interest. It is for these reasons that the Court ordered the Defendant to pay the Company preliquidated damages amounting to €18,000. This judgement was not appealed. This article seeks to focus on the part of the judgement which dealt with the noncompete clause and does not summarise the judgement in its entirety.