Restrictive covenants can provide employers with valuable protection, but in order for them to be enforceable in an employment contract, they must go no further than is reasonably necessary to protect
Restrictive covenants can provide employers with valuable protection, but in order for them to be enforceable in an employment contract, they must go no further than is reasonably necessary to protect the employer's legitimate interests. Each case will be judged on its own facts, and there can be considerable judicial variability when it comes to enforcing a restrictive covenant. But generally, the courts have adopted an "employer friendly" approach in recent years to their enforcement. However, the Court of Appeal's judgment in Prophet plc v. Huggett serves as a useful reminder of the need for careful drafting.
In Prophet plc v. Huggett, the Court of Appeal overturned a High Court decision to read words into a non-compete covenant where the literal interpretation of the clause gave rise to an absurdity. Although the purpose of covenant was no doubt directed at protecting the employer's business interests by restricting the employee's post-employment competitive activities, the literal reading of the wording offered the company no such protection.
The clause in question contained a very long first sentence, drafted widely, which both parties agreed on its own would have been unenforceable, and a succeeding proviso which limited the restriction to products the employee was involved with whilst in employment with the company.
The employer provided computer software for the fresh food sector and the employee was a sales manager who had been involved in the fresh produce industry. During his employment, the only company products the employee was involved in were called Pr2 and Pr3. It was accepted by both parties that no competitor of the company provided Pr2 or Pr3 software meaning the proviso limiting the restriction to only products the employee had been involved with whilst in employment with the company rendered the covenant pointless.
The High Court Judge was prepared to add words into the covenant to produce a commercially sensible result. In his view "something had gone wrong" in the drafting and the literal interpretation of the clause could not have been its true meaning, since it would not prevent the employee from working for a competitor of the company in the provision of software systems to the fresh produce industry.
The Court of Appeal acknowledged that where there is a clear choice between an interpretation that gives rise to an apparent absurdity and one that achieves a commercially sensible result, a court will ordinarily favour the latter interpretation.
However, the Court of Appeal found that the meaning of the proviso here was clear and there was no basis for interpreting it differently; the evident purpose of the proviso was to impose a limit on the unreasonably wide terms of the preceding sentence so as to achieve overall a covenant that was no wider than was reasonably necessary for the protection of the employer's commercial interests. It was a "carefully drawn piece of legal prose" in which the draftsman chose his words deliberately.
The covenant did not contain an error of drafting, but an error of thought; the draftsman did not think through the practical consequences of the proviso as drafted. The Court of Appeal concluded that it was not for a court to re-make the parties' bargain; the company had made its bed, and now it had to lie upon it.
The case serves as a useful reminder that restrictive covenants must be well thought through and carefully worded as a court will not rewrite a covenant that does not achieve the desired outcome, however absurd the result.
For further advice on the drafting of restrictions relevant to your business and on their enforcement in the event of a breach, please do not hesitate to contact any member of the team.
In Prophet plc v. Huggett, the Court of Appeal overturned a High Court decision to read words into a non-compete covenant where the literal interpretation of the clause gave rise to an absurdity. Although the purpose of covenant was no doubt directed at protecting the employer's business interests by restricting the employee's post-employment competitive activities, the literal reading of the wording offered the company no such protection.
The clause in question contained a very long first sentence, drafted widely, which both parties agreed on its own would have been unenforceable, and a succeeding proviso which limited the restriction to products the employee was involved with whilst in employment with the company.
The employer provided computer software for the fresh food sector and the employee was a sales manager who had been involved in the fresh produce industry. During his employment, the only company products the employee was involved in were called Pr2 and Pr3. It was accepted by both parties that no competitor of the company provided Pr2 or Pr3 software meaning the proviso limiting the restriction to only products the employee had been involved with whilst in employment with the company rendered the covenant pointless.
The High Court Judge was prepared to add words into the covenant to produce a commercially sensible result. In his view "something had gone wrong" in the drafting and the literal interpretation of the clause could not have been its true meaning, since it would not prevent the employee from working for a competitor of the company in the provision of software systems to the fresh produce industry.
The Court of Appeal acknowledged that where there is a clear choice between an interpretation that gives rise to an apparent absurdity and one that achieves a commercially sensible result, a court will ordinarily favour the latter interpretation.
However, the Court of Appeal found that the meaning of the proviso here was clear and there was no basis for interpreting it differently; the evident purpose of the proviso was to impose a limit on the unreasonably wide terms of the preceding sentence so as to achieve overall a covenant that was no wider than was reasonably necessary for the protection of the employer's commercial interests. It was a "carefully drawn piece of legal prose" in which the draftsman chose his words deliberately.
The covenant did not contain an error of drafting, but an error of thought; the draftsman did not think through the practical consequences of the proviso as drafted. The Court of Appeal concluded that it was not for a court to re-make the parties' bargain; the company had made its bed, and now it had to lie upon it.
The case serves as a useful reminder that restrictive covenants must be well thought through and carefully worded as a court will not rewrite a covenant that does not achieve the desired outcome, however absurd the result.
For further advice on the drafting of restrictions relevant to your business and on their enforcement in the event of a breach, please do not hesitate to contact any member of the team.