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Restrictive covenant in a 19 year-old employment contract was unenforceable

Post-termination restrictions in employment contracts are aimed at preventing employees from misusing confidential information, working for a competitor organisation or soliciting clients when they leave an organisation.

The employer needs to show the restriction protects a legitimate business interest, and goes no further than is reasonably necessary to protect that interest, in order to be able to enforce the contract in court.

In the recent case of Bartholomews Agri Food v Thornton, the High Court had to decide whether a restrictive covenant in an employment contract was enforceable when the employer involved applied for a court injunction.

Thornton started working for Bartholomews in 1997 as a trainee agronomist. He provided customer advice on soil condition, crop planting, and seed choices. His contract stated that he would not engage in work for, or supply goods and services "of a similar nature" to, the company’s customers or its competitors for a period of six months following the termination of his employment. Unusually, the contract specified that he would continue to be paid for those six months if he complied with the restrictive covenant, even if he started working elsewhere during that time.

Thornton resigned on 21 December 2015, intending to start work for Pro Cam UK, a seed retailer, on 22 March 2016, when his notice period expired. His previous employer applied for a court injunction to enforce the terms of the restrictive covenant.

High Court
The court had to decide whether or not his ex-employer had a legitimate business interest to protect and whether the restrictive covenant was no wider than was necessary to protect it. The court said at the outset that the clauses concerned “have not been well drafted” as there were no definitions or clarification of what the words "of a similar nature" meant. Thornton argued that he would be taking on a national technical role with his new employer and, although he would carry out some agronomy advisory work, his role would be different from his previous job.

The court held the restrictive covenant was not enforceable and was wider than reasonably necessary to protect Bartholomews' business interest. To begin with, it was imposed back in 1997 when Thornton was a trainee agronomist with no experience and no customer contacts and was "manifestly inappropriate for such a junior employee". As the clause would have been unenforceable at the time it was entered into, it remained unenforceable, even though Thornton's status and role had changed in the intervening years to a point where the clause might have been regarded as reasonable.

It also applied to all Bartholomews' customers, regardless of whether Thornton knew them or had ever carried out work for them. The evidence showed his customers contributed just over 1 per cent of his previous employer’s turnover. Put another way, more than 98 per cent of its turnover was generated by customers that he did not deal with directly.

Finally, the provision to pay Thornton for the six month period post termination (if he complied with the restrictions) in effect allowed Bartholomews to purchase a restraint of trade which is contrary to public policy and unenforceable.

The High Court held that the restrictive covenant in Thornton's contract was unenforceable and refused Bartholomews' application for an injunction.

Comment
Restrictive covenants need to be drafted carefully at the start of employment to ensure they are suitable for the post in question. Employers often use template wording for such clauses but this is likely to be unenforceable unless it is tailored to the particular employee and his or her role. Restrictive covenants should be kept under review as an employee progresses through the organisation or gains promotion to another role, to ensure they continue to be appropriate.

Employers also need to identify the legitimate interest which justifies the restriction and ensure the restriction goes no further than is reasonably necessary to protect it. This requires careful consideration, particularly whether the geographical scope and duration of the covenant is appropriate to the risk of damage to the employer if the employee leaves.



Added: 22-04-2016
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