Insights

In its judgement dated 26 May 2021, Antonio Camilleri, in the name and representation of Antonio’s Barber Shop vs Salvatore Sicurella, the Court of Appeal, presided over by the Honorary Lawrence Mintoff, confirmed a decision of the Court of Magistrates.

The facts of the case were as follows: Camilleri, the plaintiff, appealed a decision given by the Court of Magistrates on the 30 October 2019 in which it held that the penalty clauses in the employment contract which presuppose the payment of pre-liquidated damages constitute unreasonable restraints of trade and go against public order, particularly in light of the needs and nature of the business and the job, salary and length of service of the defendant, thus rendering the clauses unenforceable.

The defendant was employed as a barber by the plaintiff for a definite period of 2 years. He was employed on 1 June 2017 and his employment was terminated on 13 March 2018. The employment contract contained conditions restricting the defendant from competing directly and indirectly against the plaintiff and from soliciting business and employees of the plaintiff after termination of his employment. The plaintiff asked to court to order to the defendant to pay the sum of Euro 8,000 as per liquidated damages for every breach of the non-solicitation and the non-competition clause.

The plaintiff claimed that the defendant had been employed because he was hardworking and punctual, two qualities the plaintiff looks for when hiring employees. However, after some time working with the plaintiff, the defendant became irresponsible and started arriving late to work and being arrogant. Consequently, he was leaving a negative impact on the reputation of the business and affected the other employees who had to solve the problems he caused.  Due to these circumstances, the plaintiff opted to terminate his employment. After the termination of his employment, the defendant started working in a shop which was previously operated by Antonio’s Barber Shop and gave the impression that the shop is still being run by Antonio’s Barber Shop. He started offering the same services and using the same training and technique which the plaintiff had provided to him in order to attract the plaintiff’s clients and thus compete with the plaintiff. For these reasons, the plaintiff claimed that the defendant had breached his contractual obligations which he had after the termination of his employment and consequently, instituted an action in front of the Court of Magistrates. The plaintiff asked the Court to order the defendant to pay €8000 in pre-liquidated damages due to the breach of the penalty clauses in the employment contract. The defendant had refused to pay such damages when requested to do so by the plaintiff. The Court of Magistrates decided against the plaintiff.

The plaintiff appealed on the grounds that he did not agree with the conclusion of the Court of Magistrates that the penalty clauses are unreasonable and not justifiable in light of the circumstances of the case. Furthermore, the plaintiff claimed that the quantum of pre-liquidated damages is proportionate to the defendant’s wage and that these damages were imposed to serve as a deterrent to avoid situations where persons who were taught by the plaintiff end up competing with the plaintiff.

To decide whether the non-compete, non-solicitation and confidentiality clauses in the contract are reasonable, the Court of Appeal examined each clause separately. The Court held that there was a discrepancy between the wording of the clauses and what the plaintiff declared the clauses to mean. The language used in the clauses was very generic and wide and they could not be considered reasonable or justifiable. The clauses also limit fair competition.  The non-compete clause prohibited the defendant from doing any work related to his expertise since any work dealing with hair could be considered to compete, directly or indirectly, with the plaintiff’s business. Therefore, for six months after the termination of his employment, he could not work or practice his trained skills. Furthermore, the non-solicitation clauses were too generic, rendering them unenforceable. The confidentiality clause encompasses all information which the defendant could have come across throughout his employment, even information which is not sensitive. In view of these findings, the Court concluded that the wide array of information captured by this clause restricts competition.

This article was first published in the Malta Independent (31st August 2022).