Restrictive covenants are contractual terms restricting an employee’s activities after termination of their employment. To be enforceable, restrictive covenants must go no further than is reasonably necessary to protect the legitimate business interests of the employer.
In particular, non-compete restrictions – a restriction prohibiting the employee from working for competitors of the company after termination of their employment – have traditionally been harder to enforce than other types of restrictions.
In the recent case of Prophet plc v Huggett [2014] EWHC 615 (Ch), the High Court granted an injunction to enforce a 12 month non-compete restrictive covenant which, when read literally, offered the employer no protection at all.
Facts:
Mr Huggett was employed by Prophet plc (Prophet) as a software developer and its sales manager across the UK. In December 2013, Mr Huggett resigned in order to join one of Prophet’s competitors and requested early release from his 12 weeks’ notice period.
Prophet believed that, if Mr Huggett joined the competitor, he would be breaching a non-compete clause contained in his employment contract.
The non-compete restriction prevented Mr Huggett from competing with Prophet “in connection with any products in, or on, which he was involved whilst employed hereunder.” In other words, the clause restricted Mr Huggett from working with any of Prophet’s products.
As Mr Huggett would not have an opportunity to sell Prophet’s products whilst working on behalf on a competitor, the restriction, when read literally, was not capable of protecting Prophet’s business interests at all.
However, the Court decided that the restriction did not reflect the true intentions of the parties but it was rather the result of a drafting error. The Court went on to find that the true meaning of the provision could be achieved by inserting the words “or similar thereto” to the end of the clause. The Court went on to determine that the 12 month restriction period appeared reasonable.
It should be noted that the Court found Mr Huggett to be a “thoroughly unreliable witness”, an assessment which may have factored into its decision.
Notwithstanding this decision, it should be highlighted that the Court will only re-write a restrictive covenant in exceptional circumstances. Companies should ensure that their restrictive covenants accurately reflect the intentions of the parties and not rely on the Courts to correct their drafting mistakes; as occurred in this case.
For further advice in relation to drafting a restrictive covenant in an employment contract, or else enforcing a covenant that you think has been breached, please do not hesitate to contact us.