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Restrictive Covenants, are they reasonable?

Background

Employers are often anxious to guard amongst other matters, against direct competition from former employees. However the only sure way to guarantee this is to remove the individual from the marketplace for a limited period post-termination via a restrictive covenant. This type of clause can seek to limit the former employee’s opportunity to gain employment, however they are subject to extensive analysis. When faced with the question of enforceability of such a clause, the court will presume the restraint is void unless the employer can show it is reasonable. The Court will consider the following two questions in deciding the issue of ‘reasonableness’:

  • Is there a ‘legitimate business interest’ to protect?; and
  • Is the wording of the clause reasonable in the circumstances?

The case of Bartholomews Agri Food v Thornton highlights that it was not reasonable to include a catch-all covenant into a junior employment contract, in preparation for future promotion of an employee.

The facts

In this case, the covenant was in place when the employee first entered the business as a trainee agronomist in 1997. The clause sought to prevent the employee from dealing with any customer of the employer for six months post-termination, regardless of whether he had had any dealings with them. At the time he had no experience or customer base. Therefore a non-compete clause in these terms was inappropriate.

The High Court ruled that a covenant which was unenforceable when it was first imposed, remains so regardless of whether the employee is later promoted to a role where it could be regarded as reasonable. The Court went further and found that the terms of the covenant were drafted too widely and were unreasonable, even after the employee’s 20-year career. Given the employee worked with 2% of the employer’s customers, it would have been unreasonable to prevent him from working with the customers representing the other 98%.

Given all of the above it would be wise for employers to seek legal advice when drafting a restrictive covenant to ensure that these are tailored to your business and the employee’s position. Employers should also be aware that each case turns on its individual facts and restrictive covenants should be reviewed from time to time for all employees in order to prevent them becoming unreasonable.

Please feel free to contact us on 0191 282 2880 for a no obligation chat or email us if you require further advice regarding restrictive covenants.

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