Restrictive covenants set out in employees’ contracts of employment can provide useful protection for employers. These restrictions can stop former staff taking competitive action such as taking your customers, which can have a very real impact on your business.
There are different types of restrictions that employers can make use of to protect their client base from being impacted, taken or contacted by former members of staff. Most often these restrictions last for a period of six or twelve months. For a restrictive covenant to be enforceable it needs to be reasonable and there must be a balance between the employer’s right to protect its “legitimate interests” and the employee’s right to earn a living.
The problem is that restrictive covenants used in contracts of employment can be notoriously difficult to enforce, often because when drafted this was not with the particular situation the employer wants protection against (further on down the line) in mind. The question of whether a restrictive covenant is reasonable and therefore enforceable has to be considered by a court at the point the restriction was entered into, not in the light of subsequent events.
So, how can you get it right and what does the latest case on this issue tell us?
The High Court ruled in the case of Bartholomew Agri Food Ltd v Thornton  that a restrictive covenant agreed in a contract of employment back in 1997 was unreasonable and unenforceable for various reasons when the employer wanted to rely on it years later.
This case a clear warning bell for employers whose contracts of employment include restrictive covenants that do not reflect an employee’s current role and the corresponding protections the employer might want to rely on should the employee leave the business.
As is usual with restrictive covenants, the Judge in the Bartholomew case considered the reasonableness of the restrictive covenant at the time it was entered into when Mr Thornton (the employee) was taken on as a trainee agronomist and not when eighteen years later, he was an experienced agronomist advisor.
In this particular case the restriction was put in place when the employee entered the business as a trainee in 1997 and at that time had no experience or customer base. Therefore a non-compete clause that stopped him many years later from working with any of his employer’s customer base for six months was held to be inappropriate and unenforceable.
The Judge went onto find a further reason to reject the reasonableness of the restrictive covenant. This was that, in any event, the terms of the restrictive covenant were drafted too widely to be reasonable even after the employee’s 18 year career with the business. The problem was the restrictive covenant aimed to prevent the employee from dealing with any customer of the employer even if the employee had no previous dealings with them. The Judge took into account that the employee had only worked with customers who reflected 2% of the company’s overall turnover. On this basis, it would have been unreasonable to prevent him from working with the other 98% of the employer’s existing customer base.
Furthermore, the Judge was not swayed in his decision by an unusual term in the contract of employment that said the employer would continue to pay the employee in full during the six month term of his restrictive covenant.
This case underlines the importance of having up to date and well-drafted restrictive covenants that are appropriate for each employee where post-termination restrictions are important for your business. Restrictive covenants need to be regularly reviewed, particularly with promotions and career development of your staff in mind.
We therefore recommend that you seek expert advice from a specialist employment lawyer when it comes to the drafting, considering the enforceability and the enforcement of restrictive covenants. Our employment and dispute resolution teams would be delighted to assist you with this.
The Stephens Scown employment team works in partnership with organisations to improve their HR practices and advise on employment issues. To discuss this or any other HR issue call 01392 210700 or firstname.lastname@example.org.