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Restrictive covenants – when are they enforceable?

Two recent High Court cases have highlighted the importance of ensuring restrictive covenants in employment contracts are reasonable and kept up to date in line with an individual’s employment progression.

In the first case, an IT company sought an injunction against a former employee upon him leaving the firm for breach of a restrictive covenant which bound the employee to a twelve month non-competition agreement following termination of his employment. In this case, it is important to note that the employee signed up to the terms of the covenant within his original contract of employment when he joined the firm as an account manager twelve years previously.  Despite the fact that the employee had since progressed significantly in the firm to the role of company director, the Court ruled that the terms of a covenant can only be held if they were reasonable at the time the parties entered into the contract of employment. Consequently, the non-compete clause was deemed un-enforceable.

The second case concerns a former employee at Northern Foods Ltd.  The employee joined the company in 2000, signing his first contract of employment; which contained no restrictive covenants, in 2003. Upon promotion in 2009, the employee was provided a new employment contract, which did contain a post-termination restrictive covenant. However, the employee did not sign the contract, simply filing it away in a drawer. He did however apply for a private health scheme with the firm; a benefit that only became available to him with the promotion of his role.

Upon leaving the firm, the employee argued that as he had not signed the contract, he could not be bound by its restrictive covenants. The High Court judgement ruled, however, that upon the employee’s application for the private medical cover, he became bound by the terms of the new employment contract, including its restrictive covenants. Had he not applied for the cover, however, he would not have been bound by the contract at all.

These cases act as a warning for employers to ensure that employment contracts are not only signed, but kept up to date, with the suitability of restrictive covenants being reviewed at the time of any promotion to ensure that they are more appropriate to the level of role.

If you require advice in relation to restrictive covenants, either  in relation to drafting employment contracts or indeed to commence action in relation to the breach of a restrictive covenant, please don’t hesitate to contact our experts for free initial advice.

By Daniel Draper, Commercial Litigation Lawyer

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