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Jessica  Clough
Jessica Clough,
TRAINEE CHARTERED LEGAL EXECUTIVE
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Are your restrictive covenants up to the job?
11 April 2016

When senior employees leave, many employers worry that they might try to take clients, colleagues and/or confidential information with them. To prevent this from happening, employers will usually include restrictive covenants in their contracts of employment. However, for restrictions to be enforceable, they must be carefully drafted. This week we look at how not to do it in the recent High Court decision in the case of Bartholomews Agri Food v Thornton [2016].

The facts

Mr Thornton was first hired by Bartholomew Agri Food in 1997 as a trainee Agronomist. His contract of employment stated that he was subject to a six month non-compete clause which prevented him from working for competitors within the six Counties of the company’s “trading area” or providing “services of a similar nature” to any of Bartholomews’ customers without prior approval from the company. In return for not breaching this covenant, Bartholomews would continue to pay his salary for the 6 months of the covenant, even if he obtained other (non-competing) employment within that time.

Over his 19 years with the company, Mr Thornton rose through the ranks to a client advising role but remained on his original contract of employment. He finally left to work in a similar role at another company within Bartholomews’ trading area.

Bartholomews applied for an injunction against Mr Thornton for breaching his restrictive covenant. They argued that the scope of the restrictive covenant was reasonable and proportionate in order to protect Bartholomews’ legitimate business interests, confidential information and customer connections.

They also pointed out that the clause benefitted Mr Thornton as the company would continue to pay him for the 6 months of the covenant, even if he became employed elsewhere during that time, as long as he did not breach his covenant.

Mr Thornton argued that the only confidential information he possessed was job experience he had developed over the years and the knowledge of clients which he had built up in his head. He claimed that most of the information which he had had access to was either publically available or (for pricing structures) out of date within a rapid space of time.

Decision

The High Court refused to grant the interim injunction on the basis that the clause was in restraint of trade and unenforceable.

The Court held that in restricting him from dealing with ALL clients rather than only those he had dealings with, it was drafted far wider than reasonably necessary. It was noted by the Court that Mr Thornton was only responsible for about 1% of the company’s turn over, leading them to conclude that “the remaining 98% plus of turnover was generated by customers with whom [Mr Thornton] did not directly deal”.

The Court was also not satisfied that Mr Thornton was in possession of any confidential information which could be used against the company – he had not retained any relevant documents and they agreed with him that most of the information he had had access to while at the company was either publicly available or out of date.

The Court were not impressed by the clause providing for Mr Thornton to be paid during the 6 months period of the restriction, provided he did not breach the covenant, and found it “contrary to public policy to allow an employer to purchase a restraint”.

Finally, it concluded that the clause would have been “manifestly inappropriate” for such a junior employee as it had been imposed on Mr Thornton when he was a trainee, with no client contacts or experience. As it was void at the time it was entered into, the clause remained unenforceable now, despite his subsequent promotion to a role where such a covenant (if properly drafted) might be regarded as reasonable.

Summary

This case is a reminder that a “one size fits all” approach to contracts of employment does not work when it comes to restrictive covenants.  

Restrictive covenants must be no wider than is necessary for the protection of the business, so it is important to tailor them to the appropriate level for the role in order for them to be enforceable. By way of example, a properly drafted 12 month restriction might be enforceable for a Sales Director but clearly would not be for an admin assistant.

It also demonstrates that the reasonableness of a restrictive covenant is assessed at the time that the agreement is made. Therefore, if a covenant is unenforceable when it is agreed, it will continue to be unenforceable despite later promotion to a more senior role.

What should employers do?

When recruiting a new member of staff, look at what their role will entail – how much contact will they have with clients and confidential information? Weigh up what level (if any) of restrictive covenant would be appropriate in their case.

When there is a promotion or change of role (e.g. perhaps to a more client facing role), reassess their restrictions again and see if has become appropriate to add (or upgrade) their restrictive covenants.

For a look at Social Media in the workplace, please join us for our next webinar at 11am on 19 May 2016.

For more information about restrictive covenants or to find out more about how the employment team can help you, please contact the team on [email protected] or ring 0118 952 7284. 

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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