There is a commonly held misconception that restrictive covenants are always unenforceable or, as we often hear, “not worth the paper they are written on”. It is true that many covenants are badly drafted and will not satisfy the legal requirements for enforcement. However, there are equally covenants that have been well thought out, specifically drafted to the particular employment relationship and only go as far as is necessary to protect the employer’s legitimate business interests. In these cases, courts have upheld these covenants and have granted injunctions against former employees and new employers to delay the new employment relationship from forming. They will also, in many cases, award damages for any loss of profits suffered by the aggrieved former employer. In all cases in civil courts, the losing party will be liable for the successful party’s costs which, in cases involving the enforcement of restrictive covenants, can be substantial.
A recent case of Bartholomews Agri Food Limited v Thornton [2016 EWHC 648 (QB)] examined whether a covenant entered into by an employee, some 20 years earlier and whilst in a significantly more junior role, could be enforced now. The contract in question included the following clause :
“Employees shall not, for a period of six months immediately following the termination of their employment be engaged on work, supplying goods or services of a similar nature which compete with the Company to the Company’s customers, with a trade competitor within the Company’s trading area, (which is West and East Sussex, Kent, Hampshire, Wiltshire and Dorset) or on their own account without prior approval from the Company. In this unlikely event, the employee’s full benefits will be paid during this period.”
Mr Thornton entered into this contract in September 1997 as a trainee agronomist (a specialised type of plant and soil scientist). The court held that, at the point when Mr Thornton entered into the contract, the covenant was too wide to be enforceable against him. He was a trainee with no customer base or relationships and to prevent him from working in a similar role over such a wide geographical area was unreasonable. Bartholomews tried to argue that the covenant was appropriate to Mr Thornton at the time of the termination of his employment but this was rejected by the court. The court held that even after that period of time and the development in Mr Thornton’s role with Bartholomews, the clause was still too widely drafted and refused to uphold it. Evidence disclosed that Mr Thornton was responsible for just over 1% of Bartholomews’ turnover. It followed that the remaining 98% plus of turnover was generated by customers with whom Mr Thornton did not directly deal. The court held that it would be wrong to restrict Mr Thornton from having dealings with those 98% of Bartholemews’ customers.
The lessons to be learned from this case are:
- Be very specific in the drafting of covenants. If you want to be able to enforce them, ensure they are drafted by a specialist lawyer.
- Less is more. The shorter a covenant is in terms of time or distance, the more likely it is to be enforceable.
- Regularly review your contracts of employment to ensure that employees are signed up to contracts that are relevant and specific to them.
If you would like any further information about the contents of this article, please contact Jayne Holliday, Associate in our Employment Department on 0121 227 3887.