Restrictive covenant judged too extreme to be enforceable
Restrictive covenants are a useful way to protect your business from competition from employees who may leave to join a rival company.
They work in various ways such as preventing an employee from competing with your business for a set period or within a set area, or by preventing them approaching your clients for a specified time.
However, they have to be drawn up very carefully; if they are not restrictive enough they may not be effective but if they are too restrictive they may be unenforceable, as happened in a recent case before the High Court.
It involved an employee who joined a food company 20 years ago as a trainee. His contract was subject to a covenant that prevented him working with any of the company’s client base for six months if he resigned.
However, at that time, as a trainee, he didn’t have didn’t have any involvement with clients, which meant that the covenant was inappropriate and a restraint of trade.
The covenant didn’t become an issue until recently when the employee, by now an experienced member of staff, wished to leave. The company sought to enforce the covenant to prevent him dealing with any of its customers, regardless of whether he had ever dealt with them during the course of his work.
He argued that this was unfair because he had only ever dealt with about 2% of the company’s clients and the covenant was therefore too restrictive. The High Court ruled in his favour. It held that it would clearly be unfair to prevent him working the other 98% of customers, given that he had never dealt with them in the past.
Please contact Jackie Cuneen if you would like more information about the issues raised in this article or any aspect of employment law.