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Restrictive Covenants – A Tale of Caution

Jul 23, 2014

The Court of Appeal has recently re-confirmed the position that it will not readily interfere with restrictive covenants in employment contracts that are later found to be unenforceable.

In the case of Prophet PLC –v- Hugget, Mr Hugget signed an employment contract that contained a provision preventing him; for a period of 12 months from being, “employed, concerned or interested in any area and in connection with any products in, or on, which he/she was involved whilst employed” by Prophet.

In other words Mr Hugget could not sell Prophet products, not on the face of it an unreasonable restriction.

The issue in this case arose however in that only Prophet sells it’s products. It does not use re-sellers. As such the restriction offered no protection to Prophet when Mr Hugget left their employment and began working for a competitor.

Prophet argued that this was a nonsense and clearly an error in drafting that the Court should rectify such that Mr Hugget should be prevented from working for a business selling competing products. Although the Court agreed that the clause as drafted was a nonsense the clause was nonetheless clear as to it’s meaning and declined to amend it.

This case highlights the importance for employers in getting their restrictive covenants right at the time they ask the employee to sign the employment contract. Following the guidance in this case the courts should not be expected to interfere with covenants in the employer's favour and if employers want protection from unfair competition or the poaching of their customers they should ensure that the covenants are properly drafted.

If you have any queries about restrictive covenants in an employment contract please do contact our Gary Smith on 01279 712576 or via email at gsmith@nockolds.co.uk


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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