Good news for employers seeking to enforce restrictive covenants

Five years ago I wrote an article for this blog which was entitled “Don’t rely on a court to fix a ‘defective’ restrictive covenant“. In doing so I was merely using a recent case to demonstrate the approach taken by courts to restrictive covenants in employment contracts, viz. that they have to be precise and correct in all respects, failing which they are likely to be struck out in their entirety. That’s why you often see a sub-clause at the end of series of restrictive covenants which states something along the lines that if any covenant or part thereof should be found to be unenforceable, that shall not invalidate the remainder: an attempt to pre-empt the likely outcome if the clauses are subjected to court scrutiny.

Restrictive covenants in employment contracts, and particularly those which seek to restrict a former employee from joining a competitor, can be difficult to enforce in practice. That’s because they are a form of restraint of trade which, on the face of it, is contrary to public policy. However, courts have acknowledged over the years that employers have legitimate business interests which they ought to be able to protect, but only to the extent that it is reasonable to do so. Consequently, such restrictions should be reasonable in area and duration, with the restrictions providing no more protection than is reasonably necessary. the received wisdom has been that if they go too far, they are likely to be struck out altogether. Since court proceedings in this field can be cumbersome, time-consuming and very expensive, often with no guarantee of a successful outcome and with an opponent who might not be in a position to pay costs if ordered to do so, employers have tended to be understandably wary about litigating and have instead relied on the deterrent factor of including such clauses in contracts.

There has been a good deal of litigation concerning restrictive covenants, very often considering what restrictions are reasonable in terms of their scope and application. However, it has been over 100 years since restrictive covenants have been considered by our most senior court. That is until the judgment of the Supreme Court in the case of Tillman v Egon Zehnder Limited, which was handed down on 3 July.

Do employees have to disclose their intention to compete?

In the case of MPT Group Ltd v Peel and others [2017] EWHC 1222 (Ch), the High Court was asked to decide whether employees were under a duty to disclose their intention to compete to their employer. The facts of the case were that Mr Peel and Mr Birtwistle were employed by MPT Group Ltd…

Restrictive Covenants

Employers often choose to insert restrictive covenants into their employment contracts as a mechanism to protect their business interests when their employees leave. They are generally more appropriate for those more senior employees who have access to confidential information and/or have key relationships with clients, suppliers or other employees. However, it appears that more and more employers are…

don’t rely on a court to fix a “defective” restrictive covenant

It is often said that a court, when considering contractual issues, will overlook drafting errors in order to give effect to what the parties intended and therefore make sense of what would otherwise be contradictory or plainly “wrong”. Indeed there are many High Court judgments which clearly apply that approach. However, it is a dangerous…

limits to the extent of protection of confidential information

There are many cases concerning the alleged infringement of employers’ proprietary information, particularly following the termination of an employee’s employment. The classic counterpoint is between the protection of confidential information to which an employee has had access in the course of employment and need to avoid interference in commerce by restraint of trade unless protection…

Court of Appeal critical of heavy handed attempt to injunct former employee

In Caterpillar Logistics Services (UK) Ltd v de Crean, the Court of Appeal has upheld the refusal of an injunction application against a former employee. Mrs de Crean had worked in a senior capacity and had a contract which included a confidentiality agreement but did not include terms restricting her activities after her employment ended.…

post termination covenants – non-competition – period of restriction

[picappgallerysingle id=”7776916″ align=”left”]Many employers are worried about employees leaving to work for a competitor and therefore seek to impose restrictions on what the employee can do after termination of employment. These post-termination covenants are clearly in restraint of trade and therefore contrary to public policy. However, they are permitted if they can be shown to…