Unenforcable Restrictive Covenants

Developing contractBartholomews Agri Food Ltd v Thornton [2016] EWHC 648 (QB)

The High Court has reaffirmed that restrictive covenants are unenforceable if they are wider than reasonably necessary to protect legitimate business interests.

Where an employer seeks to protect their business by including a restrictive covenant in an employment contract, it is important that the wording reflects what is intended at the time that the covenant is entered into.  Where the scope of the restriction is too wide or lacks relevant detail the restrictive covenant is unlikely to be enforceable.  Any restrictive covenant must be intended to protect a business interest as opposed to just complication or obstructing competitors.

In Mr Thornton’s case there were a number of areas where the High Court ruled that restrictive covenant fell short of being enforceable:  The clause applied to all of the Company’s clients rather than just the ones Mr Thornton had been in contact with,   although there was a reference to confidential information there was no definition of what this included and at the time the agreement was entered into Mr Thornton was a trainee and the restrictions in place were inappropriate for someone of his seniority at that time.

When considering the enforceability of a restricted covenant the underlying principle is that there is legitimate business requiring protection and that the clause is no wider than is reasonably necessary for the protection of that interest.  In reaching the judgment, the High Court reaffirmed the judgement in Pat Systems v Neilly [2012] IRLR 979 which provides that where an employment non-compete clause was unenforceable at the time it was entered into, it remains unenforceable regardless of promotions or changes to the employee’s role even if it were to be enforceable under such circumstances.

The High Court considered that the clause went further than was required to protect its business interests, these areas included restrictions relating to all of the Company’s clients as opposed to just those with whom Mr Thornton had dealings.  The High Court pointed out that Mr Thornton’s  clients account for 2% of Company revenues and that is was inappropriate to include the remaining 98% of the Company’s clients in the clause in question.  The High Court was also less than impressed with blanket geographical restrictions placed on Mr Thornton relating to regions where Mr Thornton had no client interaction.  The High Court commented that the clause would have been more reasonable if it had provided that the employee “could not, for 6 Months, deal with or solicit customers with whom they have he had dealt for a period of time before the termination of employment.”

In order to use restrictive covenants to protect business interests and as with any other contractual term, care must be taken to ensure enforceability.  Appropriate procedures and controls should be in place in order to maintain that clauses remain appropriate and where necessary change with changes to the business and or an individual’s role in the business.

Jim Taylor LLM – 9 June 2016

The opinion given in this article is for general information only and is intended to illustrate and highlight themes which may affect employers and their employees. It should not be taken as specific advice on any situation or the appropriate course of action for any particular company or employer. Should you wish to discuss a similar situation or any other matter please contact Ascent HR Limited. ©Ascent HR Limited.

Leave a Reply