COMPETITION AUTHORITY

Competition Authority Decision of 10 June 1993 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No. CA/1130/92 - Apex Fire Protection Ltd/
Mr. Noel Murtagh.

Decision No. 20

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Competition Authority Decision of 10 June 1993 relating to a proceeding under Section 4 of the Competition Act, 1991.

Notification No:	CA/1130/92 -	Apex Fire Protection Ltd/Mr. Noel Murtagh

Decision No: 20

Introduction

1.	This decision concerns a contract of employment between Apex Fire Protection Ltd and Mr. Noel Murtagh.  The arrangements were notified on 11 November, 1992 under Section 7(1) of the Competition Act, 1991 for the purpose of obtaining a certificate under Section 4(4) or, in the event of a refusal by the Authority to issue a certificate, a licence under Section 4(2).

2.	A Statement of Objections was issued to both parties on 5 May 1993.  A response was received from Apex Fire Protection Ltd, and this has been taken into account in this decision, but an oral hearing was not requested.  No response was received from Mr. Murtagh.

The Facts

(a)	Subject of the Decision

3.	The decision concerns an employment contract between Apex Fire Protection Ltd and Mr. Noel Murtagh a former employee of Apex, who has now set up his own business dealing in fire protection products and related services.  The employment contract includes certain restrictions on the employee in the event of termination of employment.

(b)	The parties concerned

Apex Fire Protection Ltd

4.	Apex Fire Protection ltd, of Apex House, Greenmount Industrial Estate, Harolds Cross Road, Dublin 12, was established in 1973.  The company is involved in the provision of fire protection and detection products and related services throughout the Republic of Ireland.  They employ 50-53 people full time and their staff turnover is approximately 50% per annum.  They provide training courses for their employees.  It has a customer base of several thousand with about 2,000 in the Dublin area alone.

Mr. Noel Murtagh

5.	Mr. Noel Murtagh commenced employment with Apex Fire Protection Ltd on 1 February, 1989 as a sales/service representative for 'the purpose of selling the goods, servicing and refilling equipment, collecting the accounts and furthering the commercial interests' of Apex.  He was based in the Dublin area - city and county.  He was promoted to a field training supervisor in October, 1991 and following this promotion, he signed the contract of employment on 29 October, 1991 with Apex.  Mr. Murtagh left Apex on 6 October, 1992 and set up his own company called A & A Fire Prevention Limited and currently employs one other person.  Circuit Court proceedings were instituted by Apex to enforce the restraint provisions contained in the contract of employment of Mr. Murtagh and an injunction, which is still in force, was obtained against him by Apex, (see para 24).

(c)	The product/service and the market

6.	The range of services provided by the various firms in this industry include the survey, design, installation, commissioning and maintenance of fire alarm and detection systems; the supply of fire extinguishers and fire equipment and the servicing, testing, repair and refurbishing of equipment.  The products involved in this case are portable fire equipment including fire extinguishers, spare parts and refills; fire hose reels and spare parts; fire extinguisher cabinets and covers; fire safety signs, push bars to open locks and key boxes.  Maintenance of the products on an annual basis is also provided as part of the overall service. The relevant product market is the market for the sale and servicing of portable fire equipment.  The relevant geographical market is the city and county of Dublin because that is the geographic area in which the restrictions under consideration apply.  There are no reliable data available on the overall size of the market for the sale and servicing of portable fire equipment and the various companies' market shares.  There are approximately forty companies involved in the industry in the greater Dublin area.  The major companies apart from Apex are Champion Fire Ltd, Antifyre Ltd, George Angus & Company, Gendist Ltd and Chubb Fire and there are several smaller companies as well.

7.	There are no legal entry requirements for a person seeking to enter the industry for the provision of goods and services for fire prevention purposes.  Fire protection and the maintenance of fire equipment is now mandatory in the majority of buildings (other than private houses).  Certain standards apply to various items of equipment used for these purposes such as fire extinguishers.  The National Standards Authority of Ireland issued standards I.S. 290 and I.S. 291 covering portable fire extinguishers in order to regulate standards for the maintenance of fire equipment.  Almost all fire extinguishers are required to be serviced on an annual basis.  Apex said that about 3-5% of extinguishers would require maintenance at six monthly intervals under I.S. 291, in high risk circumstances.

(d)	The Agreement

8.	The contract of employment between Apex Fire Protection Ltd and their former employee, Mr. Noel Murtagh, was made on 29 October, 1991, on his promotion to the position of field training supervisor.  The relevant clause in the notified agreement in these proceedings is Clause 15 which provides as follows:

Clause 15 -	"On the termination of this agreement howsoever occasioned, the representative shall not for the period of two years next after such termination within the district of which he has operated during the course of this agreement solicit any of the persons who were customers of the employer within two years immediately preceding the date of such termination and shall not divulge or disclose to any other party any information gained as a result of employment with the employer".

(e)	Submission by the Parties

Apex Fire Protection Ltd

9.	Apex submitted that Mr Noel Murtagh was not an undertaking in that he was now employed by a company known as A & A Fire Prevention Ltd.  Mr Murtagh and another person were both employed by A & A Fire Prevention Ltd.  In these circumstances, in accordance with the general direction of the Authority with regard to the definition of an undertaking, the decision of the European Court of Justice in the Unit Sugar case the decision of the Circuit Court in the case of Peter Mark-v-Marcus Daly, and the decision of the Authority itself in the reference of the contract between Peter Mark and Majella Stapleton, Mr Noel Murtagh was not an undertaking and therefore it was appropriate for the Authority to determine that the Act does not apply in this instance.  Apex also submitted that either an individual was employed by a company in which he was not an undertaking, or the Authority must set some standard or rule defining when an individual (though merely a shareholder, director or employee of a company) was nonetheless deemed to be carrying on business and therefore an undertaking.  They submitted that no such standard had been suggested by the Authority in this case.

10.	Apex submitted that the purpose of their notification was to certify the validity of clause 15 of the Contract of Employment with Noel Murtagh of 29 October, 1991.  The company found it necessary to include this clause in the contract due to the incidence of representatives leaving the company and attempting to induce customers to do business with them.

11.	Apex felt that clause 15 was reasonable since a former representative had gained knowledge of their customer base at the company's expense and that representatives capitalised on their former association with Apex and the high standing of its name whilst not necessarily working to the same standard required by Apex.  They maintained that a very high percentage of representatives who went into business on their own failed in a very short space of time, but caused a lot of problems and thereby created a bad image for the industry.  Some of the products supplied by Apex required specialist servicing and the company considered it important that this be done by  a fully trained representative as failure to do so could result in very serious consequences for the consumer.

12.	Apex submitted that they spent £35,700 on training new staff annually.  They also stated that they were in the process of providing a modern training room complete with audio visual facilities which seated 40 people at a cost of £75,000 to the company.  They also had a 2-3 week training programme for new trainees and provided a Field Training Supervisor to further assist the trainees.  A weekly meeting was held for representatives in the Dublin area to introduce them to new products and services in the industry and a three monthly meeting was also held for all Apex staff.

13.	The company submitted that they did not want to overly restrict any past employee, but they felt that past employees such as Mr Murtagh, would have a distinct advantage through their knowledge of customer contact name and address; dates of service due; familiarity with existing customers and their requirements; and the relevant price that the company charged for each of its services.

14.	Apex submitted that Mr Murtagh had worked for the company for nearly four years and during that time he would have had contact with at least 240 customers of Apex.  In his capacity as a Field Training Supervisor, which involved liaison with a large number of new representatives, Mr Murtagh would have gained knowledge of and a personal introduction to some 15% to 20% of the pool of over 1,000 client accounts given to new representatives to help them get started in the business.  It was Apex's view that as sales representatives naturally discussed their clients with each other they would be aware of the identities and individual needs of each others' customers.  There were also the weekly meetings for all representatives at which the company's customer problems were discussed.

15.	They submitted that Apex's market share was a small percentage of the potential available in Dublin city and county and they merely wished to protect the nature of the business and the standards to which they aspired.  Without the restrictive clause any current employee would be free to leave and capitalise at the company's expense on the training and knowledge they gained through their employment with Apex.  It had taken Apex 20 years to build up its customer base and the company did not want to be used as a training camp for people who trained with them and then set up their own business and profited from the knowledge of Apex's customer base.

16.	Apex stated that any employee who wished to leave and start up in competition could do so provided they observed and abided by the restriction on soliciting Apex customers within the District/Territory that they had worked in previously.  Furthermore, the restriction did not extend to canvassing Apex customers outside the district where they worked previously and this gave everybody a chance to compete fairly in the market place.  They further stated that this was the very basic and minimum restriction that could be inserted into a contract such as this.  The clause would not restrict competition from a person or persons who wished to conduct themselves professionally, but would deter an opportunist who wanted to capitalise on the goodwill of the company which had invested many years in developing a professional approach and had a proven commitment in the industry.  This was also for the benefit of the consumer who was guaranteed that qualified staff would supply, maintain and service the equipment that they had bought and thereby enabled the company to stand over the warranties that they had given in relation to their products.
17.	Apex also submitted that both the consumer and the employee benefited as a result of the efficacy of Clause 15 of the Agreement between Apex and Mr Murtagh.  Because Apex was confident that it could restrict employees soliciting its customers, it could allow individual employees to become familiar with, and gain the trust of, Apex's customer base.  This meant that those customers might go to the employee after he left, and it meant that the customer had a regular Apex employee in whom it could have confidence in respect of the servicing of its needs.  Apex would have to put some other arrangement into place which might not be as beneficial for the employee or the customer if it did not have the protection of Clause 15.  If this Clause was not operative Apex could continue to preserve its customer base by visiting customers in advance of any employee who was soliciting their business, or by offering promotions or discounts to those customers in order to prevent an employee taking Apex's business.  It was pointed out that this would mean servicing customers more regularly than was warranted by good business practice or incurring extra costs (in promotion or otherwise) which were not strictly necessary.  Ultimately, the customer would have to pay for this, and it could not be in the customer's interests to see an escalation on price in Apex or elsewhere in the industry (where similar clauses exist) simply because Apex had to take these extra steps to protect itself against former employees exploiting their knowledge of a familiarity with Apex's customer base.

18.	With regard to the term "soliciting" contained in Clause 15, Apex submitted that they relied on the definition of the word as contained in Stroud's "Words and Phrases Legally Defined" and the definition also contained therein as given by Mr Justice Hosking in the case of Sweeney v Astle (1923) NZLR 1198 which stated as follows:
	
	"The typical case of soliciting orders is where a trader or his traveller goes to some individual whom he selects to try and induce him to buy.  If instead of doing this he sends a letter or circular inviting orders, and addressed individually to those whom it is thought worth while, that also would be to solicit orders......  It involves a selection of the persons to be appealed to".

The company considered an approach to a former customer or a written communication to a former customer to be soliciting.   They did not consider the placing of an advertisement in the Golden Pages, for example, to be soliciting, but that of a direct approach or an appeal to a "select group" i.e. Apex's customers was soliciting.  The company submitted that the restriction (in Clause 15) was very limited and was not a blanket restriction.

19.	On the issue of confidentiality, also contained in Clause 15, Apex submitted that every employee had a common law duty to his employer not to disclose any information that he had gained through the course of his employment.  Dr. Michael Forde in his book on Employment Law stated as follows:
	"Even where there is no express provision, by virtue of an employee's general duty of fidelity, it is an implied term of almost all Employment Contracts that employees will not disclose or use their employer's confidential information without letters of consent.  The duty is broken, for instance, where the employee makes or copies the list of employer's customers for use by him when the employment ends or indeed where he memorises that very list for that purpose (Robb v Green, 1895, 2QB315)".

They also submitted that the confidentiality requirement in the Clause covered business secrets such as customer lists, pricing lists, proposed pricing lists, any information as to service techniques which would be unique to the company, details of the Company structure and internal financing and any other information that was not available to a competitor in the general market.  The obligation not to disclose any confidential information was included in Clause 15 out of a sense of fairness to their employees so that they would be fully aware of their obligations. 

20.	The company stated that there had been other cases in which former employees of Apex had been in breach of Clause 15.  They supplied copies of two letters which were sent to two former employees and they also referred to notification No. CA/717/92 - Apex Fire Protection Ltd and Mr. William Brennan, another former employee of the company.

Mr. Noel Murtagh

21.	Mr. Murtagh submitted that the restrictions concerned were excessive, particularly the two year restriction on soliciting.  Mr Murtagh submitted that the restrictions in Clause 15 of the employment contract were substantial in scope and were unfair in their effect on his capability to earn his livelihood.  He also submitted that the clause ran contrary to both the letter and spirit of the Competition Act.  The time restrictions were inordinately long as the time aspect worked both backwards - the restriction related to all customers of Apex during the two years prior to the date of termination - and forwards - for a period of two years after termination during which Mr Murtagh could not solicit any of those customers.

22.	Mr Murtagh submitted that it was patently unreasonable and unfair for Apex to restrict him from contact with Apex's 2,000 customers in the Dublin area even though he had contact with only 240 of those customers and maintained also that he did not receive a list of the 2,000 customers.  Mr Murtagh also submitted that Apex seemed to have a dominant position in the market and sought to maintain this by means of the restrictive clause which was grossly disproportionate to any real risk to Apex.

23.	Mr Murtagh claimed that because of the injunction he had to turn away potential customers because he felt restricted in being unable to respond to enquiries from ex-customers of his, which were also Apex customers.  Mr Moore, his legal adviser thought that the wording of the restriction on soliciting Apex customers for two years seemed to include even those customers who had left Apex during the course of the previous two years.  Mr Murtagh felt strongly that the restriction had caused him and continued to cause him grave difficulties in exercising a basic right - that of earning his livelihood by means of his own initiative and labour.  He submitted that for these reasons the Authority should not grant a certificate or a licence in any circumstances to Apex.

Apex Fire Protection Ltd v Noel Murtagh. Circuit Court Proceedings.

24.	Apex Fire Protection Ltd obtained an injunction against Mr Murtagh in the Circuit Court on 25 January, 1993.  This prevented him from soliciting any of those persons who were clients, during the two years prior to 6 October, 1992, in the Dublin area for a period of two years and restrained him from divulging or disclosing to anyone any information gained as a result of his employment with Apex for two years.  Judge Kelly said that there was a fair issue to be tried, that damages would not be an adequate remedy and that the balance of convenience lay with granting the injunction to the Plaintiffs since there was a possibility of a certificate or a licence being granted in respect of the contract by the Competition Authority.

Subsequent Developments

25.	In response to the Statement of Objections, a letter was received from Apex Fire Protection Ltd., on 28 May 1993.  It was suggested that the wording of Clause 15 be amended by the substitution of the words "who are customers of the employer at the date of the termination of employment" for the words "who were customers of the employer within two years immediately preceding the date of such termination".  Apex claimed, however, that the period of 12 months after termination proposed by the Authority, rather than two years, would not be adequate for the protection of Apex's legitimate interests.  A number of reasons were given for this view, principally that 12 months would not allow sufficient time for a new representative to obtain the trust of a client, or even to visit the client.  They suggested, however, that they would accept a reduction of the period to 18 months.

Assessment

(a)	Section 4(1)

26.	Section 4(1) of the Competition Act, 1991 prohibits and renders void all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State, or in any part of the State.

(b)	The Undertakings

27.	Section 3(1) of the Competition Act defines an undertaking as 'a person being an individual, a body corporate or an unincorporated body of persons engaged for gain in the production, supply or distribution of goods or the provision of a service'.

Apex Fire Protection Ltd

28.	Apex Fire Protection Ltd is a limited company involved in the provision of fire protection and detection goods and services for various premises for gain and is therefore an undertaking within the meaning of the Act. 

Mr Noel Murtagh

29.	Mr Noel Murtagh, a former employee of Apex Fire Protection Ltd, set up his own business in October 1992 called A & A Fire Prevention Ltd.  The Authority in its Notice on Employee agreements and the Competition Act stated that it did not consider an employee to be an undertaking within the meaning of the Act and, as such, agreements between employers and employees did not come within the scope of the Act.  It was further indicated that when an employee left an employer and set up his or her own business they would then be regarded as an undertaking.  The Authority in its decision on Phil Fortune/Budget Travel considered an ex-employee who acquired and became the proprietor of her former employer's business to be an undertaking.  In this respect, the Authority has followed the approach taken under European Competition Law.  For example, in the Nutricia Case the Commission decided, and the Court of Justice agreed, that an individual who owns or controls a business is an undertaking.  As Mr Murtagh now owns and controls his own business - A & A Fire Prevention Ltd which provides goods and services for gain - he is an undertaking within the meaning of Section 3(1) of the Act.

(c)	The Agreement

30.	Apex Fire Protection Ltd and Mr Noel Murtagh, carrying on business under the name A & A Fire Prevention Ltd, are both undertakings within the meaning of the Act and consequently the agreement between Apex and Mr Murtagh is now an agreement between undertakings as defined in Section 4(1) of the Competition Act, 1991.  The relevant product market is the market for the sale and servicing of portable fire equipment and the relevant geographical market is the city and county of Dublin.

(d)	Restriction of Competition

31.	The provisions of the notified agreement, other than clause 15, concerned matters appropriate to contracts of employment such as the duties of the employee, remuneration, working conditions etc.  They are no longer operative since the employment has ceased.

32.	In clause 15, two restrictions are imposed on the employee in the event of termination of the employment.  These restrictions are to apply for a period of two years after termination. During that period, the employee may not, within the district in which he operated,

(a)	solicit any of the persons who were customers of the employer within two years preceding the date of termination
(b)	divulge or disclose to any other party any information gained as a result of the employment.

33.	In its notice on "Employee Agreements and the Competition Act" the Authority has already given general guidance on the subject of non-competition clauses in contracts of employment.  In that Notice the Authority stated as follows:-

	"If the former employer were to seek to enforce a non-competition clause in an employment contract in respect of an employee who had left and was seeking to establish his or her own business, the Authority believes that this would represent a restriction of competition within the meaning of Section 4(1).  While such an agreement between one individual and an employer may not have a substantial impact on competition, the existence of such agreements in many sectors of the economy means that their combined effect would be to greatly restrict competition.  The Authority therefore believes that in these circumstances such agreements would offend against Section 4(1) of the Competition Act.  The Authority also believes that it would be difficult for such an agreement to satisfy the requirements specified for the grant of a licence in Section 4(2) the Act."

34.	The Authority therefore believes that a restriction which seeks to prevent a former employee entering the market as a competitor offends against Section 4(1).  The restrictions in this instance are confined to soliciting the former employer's customers and to disclosing information confidential to the employer's business.  The Authority considers that there is a difference between a restriction which seeks to prevent a former employee from entering the business and one which seeks only to protect the proprietary interests of the employer in his own business.  The Authority believes that it is essential to employer/employee relationships that an individual should not be able to take up employment solely for the purpose of gaining an introduction to the employer's customers in order to solicit such customers.  A restriction on soliciting the former employer's customers may therefore be regarded as essential both to protect the employer's proprietary interest in the goodwill of his business and to normal employer/employee relationships.  Such a restriction must not, however, exceed what is absolutely necessary to protect the employer's interests or it would be regarded as an attempt to prevent competition by the ex-employee.

35.	The Authority has considered carefully the arguments submitted by Apex in support of the proposition that the agreement does not restrict competition.  These were summarised above in paras. 9-20.  Insofar as the company are arguing that the non-solicit clause is necessary to protect the public from the provision of unsatisfactory goods or services, the Authority would say that this function is not one for private firms and that it cannot afford any justification for the imposition of clauses of the kind under consideration.  It is clear that the main purpose of the Clause is to protect the interests of the company itself from what it may consider to be unfair competition.  The company is seeking by this clause to protect the goodwill in its customer base for a certain period and in relation to a particular area.  The company considers that the restrictions involved do not exceed reasonable limits.

Restriction on Soliciting

36.	The Authority recognises that the restriction on soliciting in the present case is by no means a total prohibition of all forms of competition.  The Authority understands, on the basis of the facts in its possession, that the restriction does not cover more than a small proportion of all customers in the relevant market.  Mr Murtagh remains free to transact unsolicited business with Apex customers within the designated area, all business with Apex customers elsewhere, and all business with non-Apex customers everywhere.  He may engage in normal forms of advertising to attract customers.  After the expiry of the restriction, he will be completely free to carry on business everywhere without any restriction.  It must be recognised that the clause places some restrictions on Mr Murtagh's commercial freedom.  Mr Murtagh is seeking to earn a livelihood and build up a new business using the resources he has, including his knowledge and expertise of the business and his relationships with various customers, all acquired, admittedly while in the employment of Apex.  He considers that he should be free to offer his services to any customer; it should be for the customer alone to decide whether to do business with him or Apex or any other firm.

37.	Apex has provided important training to Mr Murtagh.  He has had personal access to some of the customers of the company as well as access to information about the company's manner of operation.  Besides having knowledge of the identity of Apex's customers, he also possesses confidential information concerning their requirements, the service dates and prices charged to them.  His employment with the company has put him in possession of information which would place him at a competitive advantage vis-a-vis  the company were he to commence business himself (as he has done).  The company is, in the Authority's view, entitled to some protection against its former employee in these circumstances.

Scope of restricted activities

38.	The restriction applies to "soliciting" certain customers.  Two issues arise here (i) whether this could extend to general advertising e.g. an advertisement in the Yellow Pages and (ii) whether it could extend to "passive" sales i.e. a sale resulting from an approach by the customer to the employee.  The Authority understands the clause not to apply in either of these situations and Apex have confirmed that that is their interpretation also.  On that basis, the Authority would raise no objection to this aspect of the clause.

Scope by reference to customers and area

39.	The persons who may not be solicited by Mr Murtagh are those persons who were customers of Apex within two years of the termination of Mr Murtagh's employment.  The reference to the area ("within the District of which he has operated") is somewhat ambiguous but it is understood (and Apex confirm) that the customers concerned are those who are based within the area of Dublin city and county only (and not the whole country) and this is unobjectionable as far as geographic scope is concerned.  Of more significance is the determination of the class of customers affected.  No distinction is drawn between customers with whom Mr Murtagh had dealings and other customers.  It is mainly in relation to the former category that the arguments in favour of the restriction generally derive their force.  The Authority accepts, however, that due account must be taken of the particular post occupied by Mr Murtagh in the Apex organisation.  As a "Field Training Supervisor", Mr Murtagh had access directly and indirectly to a wider range of customers than those dealt with previously by himself.  Accordingly, the scope o the restriction in this respect does not appear to be excessive.  A second difficulty which the Authority sees under this heading is that the class of customers, as defined, includes persons who have ceased to be 'customers' of Apex before Mr Murtagh established his business as well as persons who chose to leave Apex during the period of the restriction.  In the Authority's view, the company is not entitled to protection from soliciting of these persons.  This conclusion does not apply, of course to persons who ceased to be customers as a result of soliciting by Mr Murtagh in breach of the clause.  The Authority therefore concludes that the agreement offends against Section 4(1) of the Act in that it applies to persons who are no longer customers of Apex other than as a result of soliciting by Mr Murtagh and this exceeds what is required for the legitimate commercial interests of Apex.

40.	Apex offered to amend this clause, by letter of 28 May 1993, so as to apply only to those persons who were customers at the date of termination of employment.  Since this would now permit Mr Murtagh to solicit those persons who ceased to be customers of Apex in the two years prior to the date when his employment ceased, the Authority considers that this aspect of the agreement no longer offends against Section 4(1) of the Act.  While this would still prevent Mr Murtagh from soliciting those persons who ceased to be customers during a period after his employment ceased, the Authority considers that this would have no real effect on competition, and that its removal would not lead to any practical difference in the situation since Mr Murtagh would not be aware, of his own  knowledge, that such persons had ceased to be customers.  In the circumstances, the Authority considers that the scope of the agreement by reference to customers, as amended, does not offend against Section 4(1) of the Act. 

Scope by reference to duration

41.	In the view of the Authority, the company has not shown that a two year period after termination is necessary for the protection of its legitimate commercial interests.   In coming to this view, the Authority has taken into account the fact that the period of time during which items of fire protection equipment normally require servicing is one year.  A one year period protection, in the view of the Authority, would provide the company with ample opportunity to confirm its business connection and goodwill with its existing customers prior to facing competition for those customers from Mr Murtagh subsequently.  In reaching this conclusion the Authority has also taken account of the following factors:
	
	(i)	Insofar as the purpose of the restriction is to protect the company's goodwill, it must be admitted that only some of the goodwill in question is exclusively attributable to Mr Murtagh.  Most of the goodwill must be attributable to the company itself and to the business reputation of its services, products and the back-up support provided by the company to its representatives.

	(ii)	In the case of sale of business agreements, the Authority accepted that a two year period of protection was normally necessary to protect the goodwill of the business being acquired.  In such a case however, the starting position for the purchaser is one in which he normally possesses none of the goodwill.  He has to secure all of that goodwill unlike the employer who already holds most of it.  This consideration would suggest that a period of less than two years should normally be necessary in the case of employment contracts.

    	(iii)	Notwithstanding his previous employment with Apex, Mr Murtagh is in a position somewhat akin to a new entrant into the market.  He has to convince customers that the products and services he is offering are as good or better as those of others, including Apex, and that he is in a position to ensure adequate back-up service.

	(iv)	Apex is one of the leading firms in that market.

	 (v)	While there is obviously some degree of technical expertise involved in the provision of the services concerned, that degree is not such as to justify a lengthy period of protection.

The Authority does not consider that the suggested period of 18 months, as proposed in the letter of 28 May 1993, is necessary to protect the legitimate interests of Apex. 

42.	The Authority therefore concludes that the agreement offends against Section 4(1) of the Act in that it applies for a period of two years after the termination of the employment and exceeds what is required for the legitimate commercial interests of Apex.

Restriction on Divulging Information

43.	In some previous cases concerning sale of business or shareholder agreements the Authority considered obligations not to disclose information.  For example in the Budget Travel case, the Authority accepted a clause preventing one party from using, disclosing or divulging information of a secret or confidential nature, following the sale of a business after the second party had given an undertaking not to use this clause to prevent the first party from re-entering the market.  In another case, Scully/Tyrrell,  the Authority decided that a clause preventing the use and disclosure of confidential information did not offend against Section 4(1) of the Act, after the parties involved had stated that the restriction would not be used to prevent the second party from competing in business.  In those cases, the Authority was concerned to ensure that obligations of this kind were not used as a means of preventing or impeding a party from re-entering the market after the expiry of a non-competition clause.  The restriction in the present case only involves disclosure.  Apex have indicated that the clause under consideration will not be used in this way and will only be used to protect information covered by normal business confidentiality.

44.	Unless confidentiality can be ensured, employer/employee relationships, and many others, just could not occur.  This is relevant during the term of an agreement, and afterwards. It is akin to the goodwill being transferred as part of the sale of a business, but is probably even more important.  It is hard to see how an employer would be prepared to give confidential information to employees if they were allowed to use this or disclose it to competitors when employment ceased.  At the same time, it often has to be disclosed to employees for them to be able to do their job.  Confidentiality may therefore be seen as ancillary in the sense of being fundamentally necessary for such relationships.

45.	In the view of the Authority the restriction on disclosure does not offend against Section 4(1) of the Act.

Applicability of Section 4(2)

46.	Under Section 4(2), the Competition Authority may grant a licence in the case of any agreement or category of agreements which, 'having regard to all relevant market conditions, contributes to improving the production or distribution of goods or provision of services or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit and which does not -

	(i)	impose on the undertakings concerned terms which are not indispensable to the attainment of those objectives;

	(ii)	afford undertakings the possibility of eliminating competition in respect of a
	substantial part of the products or services in question'.
47.	As the restriction on soliciting exceeds what is required for the legitimate commercial interests of Apex, it cannot be considered to be "indispensable" within the meaning of Section 4(2) of the Act. Since all of the four tests of the subsection must be met in order to qualify for a licence, it follows that the agreement in its present form cannot be granted a licence.  It is not necessary to consider the position in relation to the other three requirements of Section 4(2).

The Decision.

48.	Apex Fire Protection Ltd., and Mr Noel Murtagh are undertakings within the meaning of the Competition Act and the contract of employment between them, dated 29 October, 1991 (CA/1130/92), is an agreement between undertakings.  The agreement, as amended in the letter of 28 May 1993, offends against Section 4(1) of the Act insofar as it contains a restriction on soliciting certain customers which exceeds what is required for the legitimate commercial interests of Apex in that it still applies for a period of 18 months after termination of employment.  The agreement may not benefit from the provisions of Section 4(2) of the Act because it contains terms which are not indispensable to the attainment of any benefits achieved by the agreement.  The Authority therefore refuses to grant a licence to the agreement between Apex Fire Protection Ltd and Mr. Noel Murtagh.

For the Competition Authority.

Patrick M. Lyons 
Chairman

10 June 1993.