Employers are concerned about the effect that departing employees have on their business, particularly with regard to relationships the leaver has established with customers, clients, suppliers or colleagues. To protect themselves many organisations seek to impose restrictive covenants with a view to preventing former employees from being able to approach or deal with key contacts, or compete with their old employer.
However, the starting position for the courts is that restrictive covenants are unlawful restraints of trade (therefore void and unenforceable) unless they go no further than reasonably necessary to protect business interests.
The High Court considered enforceability of restrictions in the case involving agricultural merchant Bartholomews. Thornton started employment there in 1997 as a trainee agronomist and signed a contract containing post-termination restrictions. He worked at Bartholomews for 18 years, during which time he was promoted yet remained on his original contract.
When Thornton resigned to work for a competitor, Bartholomews unsuccessfully applied for an injunction. Points for employers:
- The restrictive covenants were imposed on Thornton when he was a trainee with no client contacts and so were “manifestly inappropriate”. The reasonableness of the restriction will be assessed at the time that the agreement was made, so if unenforceable when entered into it remains unenforceable despite any later change in circumstances.
- Even if the covenant had been entered into following promotion it would still have been unenforceable as it went further than reasonably necessary to protect legitimate business interests (it sought to prevent dealings with all customers).
- The unusual provision of paying Thornton during the six-month period of the restrictions (even if he got a non-competing job) did not persuade the court that it should be enforceable. The High Court found it was contrary to public policy to allow an employer to purchase a restraint.
To ensure your restrictive covenants can stand up in court:
- Only use restrictive covenants when appropriate for role and level of employee, consider potential risk to the business and whether there is a legitimate interest capable of being reasonably protected.
- Never rely on a one-size-fits-all clause. Bespoke drafting depending on the industry, employer, role and seniority of the employee is key.
- Review and update restrictions regularly and always on role changes.
- Do not waste money attempting to buy restraint. A clause that agrees to pay the ex-employee during any restricted period will not assist with your ability to enforce.
Nina Robinson is a director at ESP Law. ESP Law is the provider of HR magazine’s HR Legal Service. Visit www.hrlegalservice.co.uk