Ryanair DAC v Bellew

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Allen
• Judgment Date: 23 December 2019
• Neutral Citation: [2019] IEHC 907
• Docket Number: [2019 No. 6239 P]
• Date: 23 December 2019

[2019] IEHC 907

THE HIGH COURT

Allen

[2019 No. 6239 P]

BETWEEN

RYANAIR DAC

PLAINTIFF

AND

PETER BELLEW

DEFENDANT

Employment - Restrictive covenant - Breach of covenant - Application to enforce covenant

Facts: The defendant was employed by the plaintiff airline in a senior management role. As part of his recruitment, he had signed a covenant restricting him from working with a competitor airline for a fixed period in the event he left the plaintiff's employment. The defendant agreed to join a competitor, and the plaintiff now sought to apply for compliance with the terms of the restrictive covenant.

Held by the Court, that the action would be dismissed. The Court was satisfied that the terms of the covenant would prevent the defendant taking up employment with any airline and went beyond any justification put forward by the plaintiff.

JUDGMENT of Mr. Justice Allen delivered on the 23rd day of December, 2019

Introduction

1 This is an action to compel compliance by the defendant with a covenant that he would not for a period of twelve months following the termination of his employment with the plaintiff go to work for a competitor.

2 The defendant admits that he freely signed the covenant and that at the time he signed it he understood its meaning and purpose but makes the case that he is not bound by it.

3 The action is defended on a number of grounds. There is some overlap in the grounds of defence and there was some inconsistency in the case sought to be made on behalf of the defendant at the trial, but in broad terms the defence is (1) that the covenant was not binding, (2) that the covenant is void and unenforceable because the restraint is excessive, and (3) that the circumstances in which the defendant's employment came to be terminated are such that even if the covenant is binding and enforceable, the court in the exercise of its discretion ought not to enforce it.

4 The defendant has signed a contract to commence working for another airline on 1st January, 2020. The action was commenced on 6th August, 2019 and was tried over eight days in the first two weeks of December, 2019. It was hard fought on both sides. The outcome is important for the parties and, if it was possible, the parties needed to know before Christmas what that was. If I had had more time for consideration, I might have been able to refine and polish my analysis and reasoning, but I am satisfied that I have had sufficient time to weigh the evidence and arguments and to make my decision.

Overview

5 In October, 2017 Mr. Peter Bellew was recruited as chief operations officer (“COO”) of Ryanair Limited, as it then was. He had previously worked for the company from 2006 to 2015, most recently in pilot rostering, recruitment and training.

6 In the autumn of 2017, owing in part to a change in the regulations in relation to pilots’ leave and in part to competition for pilots from other airlines, Ryanair found itself dealing with a pilot rostering crisis. Besides, there was increasing pressure on the company to recognise the pilots’ unions – something which it had steadfastly refused to do since the time of its establishment in about 1985.

7 One day in mid-September Mr. Michael O'Leary, Ryanair's chief executive officer, happened upon Mr. Bellew in the Ryanair canteen. In the time of his previous employment with Ryanair, Mr. Bellew had been responsible for pilot training and recruitment, reporting to then COO, Mr. Michael Hickey. Mr. O'Leary suggested that Mr. Bellew might return to Ryanair in his previous role but Mr. Bellew was not interested. He had left Ryanair in 2015 to take up the position of COO with Malaysia Airlines, were he had later been promoted to chief executive officer. Soon after the initial approach, Mr. Hickey left Ryanair. His departure left open the role of COO and Mr. O'Leary offered that role to Mr. Bellew. The position of COO was one of the most senior executive roles in Ryanair, one of about eight roles designated as “Z”. The responsibilities of the COO included pilot rostering, training and recruitment but extended to the maintenance and development of Ryanair's base structure, engineering and safety, and ground operations and customer handling.

8 On or shortly before 4th October, 2017 Mr. O'Leary and Mr. Bellew agreed outline terms which were confirmed in an e-mail of that date sent by Mr. O'Leary's personal assistant to a private e-mail address which Mr. Bellew had provided. The outline terms included a job description and set out that Mr. Bellew would have a basic salary of €550,000 per annum, a bonus of a maximum of €500,000, a pension contribution, various other benefits, and share options.

9 For many years prior to 2017 Ryanair had offered share options to senior executives. In 2013 Ryanair plc had adopted a share option scheme called the Ryanair plc Share Option Plan 2013 under which senior executives were offered share options from time to time in grants approved by the remuneration committee. The Ryanair plc Share Option Plan 2013 was not put into evidence but broadly the scheme was that the executives would be offered the option, at future specified dates, to purchase shares in the Ryanair plc at the price at which they stood at the date of the grant, called the strike price. The scheme was devised to incentivise and retain senior staff. The allotted number of options would vest in tranches over five years, subject to the company achieving specified profit after tax targets and would become exercisable at the end of the five years, subject to the employee remaining in employment.

10 In 2014 during his previous employment with Ryanair, Mr. Bellew had been granted 250,000 share options over a five-year period. The first tranche of 50,000 of these had vested before he left in 2015 but had lapsed when he left.

11 By the autumn of 2017 the shares in Ryanair were trading at a substantially higher price than the 2014 strike price and Mr. O'Leary proposed that if Mr. Bellew would return to Ryanair he would be put in the position he would have been if he had never left. Neither Mr. O'Leary nor Mr. Bellew knew the precise details of the Ryanair plc Share Option Plan and so the means by which what was to be done were not then tied down, but the commercial agreement was that all of Mr. Bellew's 2014 options would be restored. If that was not possible under the rules of the scheme, Mr. Bellew would have the money equivalent of the difference between the strike price and the market price when he had made up the balance of the five years’ service required for the options to become exercisable, which had been interrupted by his time with Malaysia Airlines.

12 The outline terms specified that Mr. Bellew's contract would be subject to “6 months’ notice with 12 months non-compete post termination”.

13 In and after 2015 Ryanair had made the grant of share options conditional on the agreement of the executive not to compete with the company for twelve months after the termination of his or her employment and the agreement between Mr. O'Leary and Mr. Bellew was that any future grant of share options to Mr. Bellew would be subject to such a condition. However, the 2014 grant had not been subject to such a condition and the agreement for the restoration of the balance of 2014 options was not subject to that condition.

14 The e-mail of 4th October, 2017 was followed up by an e-mail of 5th October, 2017 to which was attached proposed terms and conditions of employment and, separately, a form of “amendment to employment contract” which set out post termination restrictions. On 10th October, 2017 Mr. Bellew was sent a “cleaned up final version” of the proposed terms and conditions of employment and a letter confirming what had been agreed in relation to the 2014 share options. The terms and conditions of employment (but not the addendum) were signed on the following day.

15 It had been agreed that Mr. Bellew would take up his employment as COO on 1st December, 2017, and so he did. On the same day, Mr. Bellew was given a letter formally confirming the means by which what had been agreed in relation to his 2014 share options would be implemented and a letter of offer of 2017 share options.

16 The simple restoration of Mr. Bellew's share options would have required that he remain in employment with Ryanair until 2019, after which they would have become exercisable, but if he had left before then they would have lapsed. The implementation of the commercial agreement made in October was done by a mix of restored share options and cash. By the remuneration committee deeming Mr. Bellew to have been a “good leaver” and to be a “good returner”, his share options for 2014, 2018 and 2019 could be restored. The 100,000 share options that he would have qualified for in 2016 and 2017 could not be restored because he had not been in service. To bridge this gap he was promised a cash bonus calculated by reference to the mark-to-market value of that number of shares as at 30th November, 2017. The difference between the strike price of €6.25 and the then market price of €17.55 was €11.30. Mr. Bellew was promised a cash bonus of €1,130,000, payable in June, 2019.

17 I pause to observe that in the course of the hearing Mr. Bellew complained that his entitlements had not been resolved until after he had returned to work. While the mechanics had not been worked out until then, there was never any doubt or issue as to his entitlement or Ryanair's commitment to deliver what had been promised.

18 The letter of offer of 2017 share options was an offer of 100,000 options at the strike price of €17.55, and Mr. Bellew took this up.

19 On 23rd March, 2018 Mr. Bellew had his first performance review with Mr. O'Leary, which was positive. Mr. Bellew was awarded 90% of his maximum bonus, pro-rated for the four months of his service. He was also told that the remuneration...