Restrictive Covenants
Restrictive covenants are commonly included in many employment contracts and especially for those who are in senior positions and/or niche areas of industry. These clauses are legal in employment law if they protect a legitimate business interest and go no further than is necessary to protect that interest. They are often drafted to prevent an ex-employee from working for a competitor for a period of time after they leave employment, or seek to prevent an ex-employee poaching previous colleagues or customers in the course of their new employment. If a clause is too widely drafted the Court may deem it unenforceable or remove parts of the clause to ensure it remains reasonable but doesn’t change the effect of the restriction agreed and contemplated by the parties.
What is necessary and reasonable will depend on a variety of factors and will be assessed on a case-by-case basis, including looking at the industry involved, the employee’s role within the business and the length of the restrictions.
In a recent case the High Court removed wording from an ex-employee, Dr Boydell’s, restrictive covenants with NZP Ltd, his previous employer. Dr Boydell was employed in a senior position at NZP, a business within the pharmaceutical industry with a specialist role in producing bile acid derivatives. Dr Boydell was limited through his contract from carrying out a range of activities including restricting his ability to be involved in any activities which would compete with NZP’s business for 12 months after the termination of his employment. When leaving NZP Dr Boydell confirmed he would be going to work for a competitor.
NZP sought an injunction from the Court to prevent Dr Boydell working with their competitor based on the restrictive covenants in his contract. Dr Boydell argued that although the clause was included in his contract, it was too widely drafted and was therefore an unfair restraint on his trade and should be unenforceable.
The High Court did issue an injunction to stop Dr Boydell’s activities in line with the restrictive covenants in the contract, whilst a full hearing on the matter was awaited, but in order to do so they amended the clause by severing (removing) certain words to lessen the scope and remove the unenforceable parts of the clause without substantially changing its overall meaning.
Dr Boydell appealed the decision and the Court of Appeal held that if a clause covers what it needed to and also what was contemplated by the parties at the time they entered into it then it may still be valid even in the event the clause unintentionally covered areas which were ‘fantastical’. In these particular circumstances, the restrictions purported to also apply to group companies which in the circumstances, were too remote in reality to apply. The Court of Appeal held that in removing references to the group companies, the Judge in the High Court had not significantly changed the overall effect of the clause which was in the parties contemplation at the time it was entered into.
Why is this relevant to you and your business?
Restrictive covenants, particularly non-compete clauses can be a difficult point for employers to draft appropriately and ultimately enforce. Restrictive covenants should be drafted to ensure that they are enforceable yet clear as to your intentions and limited to what is reasonable in the circumstances. If further thought were put into the drafting of NZP’s clauses in this matter, costly litigation may have been avoided.
If you are looking to ensure your restrictive covenant clauses are enforceable as far as possible, care should be taken to ensure they are reasonable and specific to the particular employee and their position. For example, a 12 month non-compete restriction may be inappropriate for a junior employee but more appropriate for a director in the same business. This involves careful consideration of the roles, business and drafting on a case by case basis.
For any further information regarding restrictive covenants and how these may impact your business, or if you have a query on another area of employment law, please contact the Employment Law Team.
Amy Hallam
Head of Employment
t: 0114 3496989
e: amy.hallam@brmlaw.co.uk
Ellie Leatherday
Associate
t: 01246 564002
e: ellie.leatherday@brmlaw.co.uk
Jade Taylor
Trainee Solicitor
t: 01246 560587
e: jade.taylor@brmlaw.co.uk
