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Publication

Restrictive covenants – should they be read literally?

29/08/2014

Locations

United Kingdom

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Prophet plc v Huggett [2014] EWHC 615 (Ch)

If a drafting error renders a restrictive covenant useless if read literally, is it still enforceable?

A contract between a software developer and an employee containing a clause which restricted the employee from joining a competing business only operated to prevent the employee, a sales manager, from being engaged or employed in connection with any products in which he was involved during his employment. As no competitor would ever be selling the claimant employer's products, the clause was completely ineffective. The court was nevertheless prepared to read words into the clause to produce a commercially sensible result.

Relevant law

The Court will not simply re-write a covenant to make it enforceable if it is too broad, but it can be prepared to re-word it to reflect the probable true intention of the parties at the time it was entered into. In such circumstances, the Court may make the minimum changes necessary to produce a commercially sensible result.

In this case, the defective part of the clause ("…this restriction shall only operate to prevent the Employee from being so engaged, employed, concerned or interested in any area and in connection with any products in, or on, which he/she was involved whilst employed hereunder") could be remedied by adding "or similar thereto" to the end.

Yet even after the clause has been reworded, the Court still has a discretion as to whether it is enforceable and whether an injunction should be granted to remedy a breach by the employee which falls under the covenant.

Practical points

  • Restrictive covenants such as non-compete, non-solicitation and non-dealing covenants are very useful tools for an employer to protect its business from departing employees. However, it is important that these are very carefully drafted to ensure that they correctly reflect the intended purpose (whilst complying with other requirements for restrictive covenants).

  • When drafting restrictive covenants, be mindful of their literal interpretation.

  • This case was very unusual on the facts and parties should not expect the Court to re-write a restrictive covenant because it was ineffectively drafted.