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Guidance on Restrictive Covenants in Employment Contracts

Friday, 16 May 2014, Categories Latest News | Employment News | VP News | Employment Updates

Philip Kay provides guidance

Guidance on Restrictive Covenants in Employment Contracts

Coppage & Anor v Safety Net Security Limited

Prophet Plc v Huggett

 
In employment contracts, ‘restrictive covenants’ attempt to restrict an employee after they leave employment, using three general methods:
  • Non-competition – a blanket restriction on competing with the past employer, usually for a specific time period and within a specific area
  • Non-solicitation – preventing employees attempting to take past customers of the employer over to a new business, or from 'poaching' past colleagues.
  • Non-dealing – preventing employees from having specific dealings with past customers.

Such clauses regularly appear in employment contracts, but in fact present one of the most difficult areas in Employment Law. The recent cases of Coppage and Prophet provide examples of the sorts of difficulties the Courts face in practice.

Prophet Plc v Huggett – this case involved a company developing software for customers in the fresh produce industry and a sales manager of that company. The High Court held that a restrictive covenant was still enforceable despite an error in the wording of clause 19 of the employment contract.

Coppage – this case involved a company employing door supervisors and security guards, and its business development director. In this case a clause preventing any solicitation of the company's customers for 6 months was held to be enforceable.

Both of these cases provide some comfort to employers, as restrictive covenants are generally difficult to in force. However, in both of these cases the conduct of the ex-employees is very important. In Prophet, Mr Huggett admitted lying on a number of occasions in his evidence, and in Coppage Mr Coppage left the company and immediately set up a competitor (and even used a past colleague as the face of the business to try and conceal what he was doing).

There are two important lessons to take from these cases:

  1. Vigilance in making sure contracts are worded correctly. In Prophet it is likely that if there was no mistake in the contract there would have been no need for the expense of a High Court trial.
  2. The importance of making sure proper restrictive covenants are in the contracts of employees with a large amount of client contact.

The overriding lesson of all cases in this area is that each case will rely on its own facts. Unfortunately, this means that it is almost impossible to draft a “watertight” restrictive covenant clause that will apply in all circumstances.

It is vital to take proper advice when using restrictive covenants, especially when dealing with employees who have an important role in securing new work for a business (as it is for these employees that restrictive covenants are most relevant). To have the best chance of achieving an enforceable restrictive covenant that protects the employer’s interests, the individual circumstances of each employee and the circumstances of the business must be considered and these can change over time.

How we can help

For more information on our employment services, if you have an employment law enquiry or need assistance, please contact Philip Kay on 01392 344800 or use the enquiry form on the contact us page.

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