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Restrictive covenants post employment – what is enforceable?

Apr 07, 2014
Current UK law does not operate to imply any terms into an employee's contract of employment to prevent an employee from working for a competitor, soliciting former clients, dealing with former clients or from poaching former colleagues after their employment has come to an end.

If an Employer wishes to protect their business interests once an employee has left their employment they should consider incorporating express restrictive covenants into an employee’s contract of employment. This should be done at the time an employee commences employment, and should restrict them from conducting such activities, should the employment relationship terminate.

However, such restrictive covenants must be carefully drafted to ensure that they are enforceable by the courts. If a clause is drafted too widely there is a danger that it will be considered unreasonable and held to be void and unenforceable.

So what will be enforceable?

Whilst European Law views restrictive covenants as an unreasonable restraint of trade and deems such clauses in employment contracts prima facie void, the UK courts have taken a more lenient view.

It is now established law and practice that courts should consider what a covenant means when properly construed and uphold restrictive covenants that are ‘solely to protect a legitimate business interest worthy of protection’ and which are 'reasonable' in both duration and geographical extent.

If an Employer can show that a restrictive covenant is seeking to protect a legitimate business interest of either trade connections, trade secrets or staff stability and can show that the restriction is no wider than reasonably necessary to protect that legitimate interest, a court can uphold the contractual clause and grant injunctive relief or damages.

UK courts have historically been willing to apply a ‘blue pencil test’ to a restrictive covenant clause that is drafted too widely, striking out parts of a clause that does not seek to protect a legitimate interest or that is unreasonable to enable the remainder of a clause to be enforced. However, they were not previously willing to add to or reword a clause to make it enforceable.

However, in the recent case of Prophet Plc v Huggett, the court took the view that additional words could be inserted into a clause to give effect to the intended meaning of the Employer in drafting that clause.

Prophet Plc had inserted a restrictive covenant into Mr Huggett’s employment contract preventing him from competing with Prophet Plc or working for a competitor in the UK for 12 months after termination of his employment. The clause contained a caveat that the restriction would only prevent Mr Huggett from doing so in connection with any products with which he was involved whilst he was employed by Prophet Plc. As Mr Huggett's role as Sales Director involved selling Prophet Plc products and no competitor would ever be selling Prophet Plc products, the clause was ineffective.

However, when Mr Huggett took a job with a competitor, Prophet Plc sought to enforce the restrictive covenant and the court of first instance held that three additional words "or similar thereto" should be inserted into the clause. This was to give effect to the clear intentions of the parties when including that clause within Mr Huggett’s contract.

The court went on to hold that the clause was reasonable in duration and extent in light of Mr Huggett's role at the Company and exercised their discretion to grant an injunction preventing Mr Huggett from commencing employment with a competitor for 12 months following his resignation.

It follows from this case that courts now have increasing discretion to add words to and delete words from a restrictive covenant clause showing a continued shift towards courts enforcing restrictive covenants that seek to reasonably protect a company’s business interests.

Gary Smith

About the author

Gary Smith

Gary joined Nockolds in 2007 and is a Partner in our Employment Law Team. Before joining the firm Gary studied law at the University of Kent. ...

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