In the recent case of Bartholomews Agri Food v Thornton, the High Court rejected the reasonableness of a restrictive covenant in a contract of employment on various grounds.
The Court ruled that a covenant which was unenforceable when it was first imposed remains unenforceable even if the employee is later promoted to a new position where the covenant could then be considered reasonable. In this case, the employee commenced employment as a trainee agronomist in 1997. There was a non-compete clause which prevented the employee from working with any of the employer’s existing customer base for 6 months when at the time the trainee had no experience or dealings with customers. This restriction was therefore held to be restraint of trade and unenforceable.
In addition, the Court held that the covenant was too widely drafted to be reasonable even after the employee’s 20 years service. The covenant prevented the employee from dealing with the employer’s customer even where the employee had not had any prior dealings with them and the customers that the employee worked with represented only 2% of the employer’s overall turnover. On this basis, it was held to be unfair to prevent the employee from working with customers representing the other 98% of the employer’s customer base.
Employers need to ensure that post-termination restrictions are carefully drafted and are tailored to the specific employee.
What are post-termination restrictions?
Post-termination restrictions (also known as restrictive covenants) can be included within an employee’s contract of employment to protect the business’ interests by restricting the employee’s activities for a period of time after the employee’s employment has ended.
What types of post-termination restrictions can be used?
Typical post-termination restrictions include the following:
• Non-solicitation – This prevents an employee from soliciting or enticing customers or clients for a period of time after they have left your business. This type of restriction is often appropriate where an employee has a strong relationship with certain customers or clients;
• Non-dealing – A non-dealing clause prevents an employee dealing with the customer or client where your customer or client approaches your former employee. This is more onerous than a non-solicitation clause where enticement or interference is required by the employee;
• Non-poaching of employees – This prevents an employee poaching existing employees in your business for a period of time after their employment has ended; and
• Non-competition – This type of clause can prevent the former employee competing against your business for a period of time after termination of their employment in certain capacities e.g. setting up in competition as a sole trader, partnership or limited company or working as an employee for a competitor.
Careful drafting of restrictions is required
A post-termination restriction will only be enforceable if it protects a legitimate business interest. If it does not, it will not be enforceable as it is likely to be seen as restraint of trade. It is therefore important to draft clauses carefully taking into account the employee’s specific role and your particular business and to ensure that post-termination restrictions are reviewed regularly particularly where an employee is promoted into a more senior position.
If you require any assistance on the drafting of post-termination restrictions in new employee or existing employees’ contracts, please contact our Employment and HR team by email or on 0845 287 0939.