Courts take an employer friendly approach to restrictive covenants.

In Prophet plc v Huggett [2014] EWHC 615 (Ch) the High Court held that the words ‘or similar thereto’ should be inserted into a non-compete covenant. As a result a 12 month non-compete covenant was held enforceable. This is a move away from the ‘blue pencil test’ which traditionally enables the court to strike out any wording from a restrictive covenant in an attempt to make it enforceable, but they will not normally replace or add wording. Although this is a first instance decision it is the latest in a series of cases that suggest the courts are taking a more employer friendly approach to the enforceability of post termination restrictive covenants.

Length of restrictive covenants

In Croesus Financial Services Ltd v Bradshaw & anor [2013] EWHC 3685 (QB) and Merlin Financial Consultants Ltd v Cooper [2014] EWHC 1196 (QB) the courts indicated that they would take into account the relevant industry standards when assessing the length of a non-compete clause. In both these cases a 12 month non-compete covenant was upheld despite the lack of any other limits on the covenant. Both Croesus and Merlin as well as Romero Insurance Brokers Ltd v Templeton & anor [2013] EWHC 1198 therefore provide a good point of reference for employers in financial and insurance services.

Coppage & anor v Safetynet Security Ltd [2013] EWCA Civ 1176 is a useful case for showing that the chances of a restrictive covenant being upheld are greater if the length of the covenant is shorter. This is so, even if, as in Coppage the covenant is otherwise very wide. In Coppage the non-solicitation clause was not limited to only customers with whom the employee had worked. Instead it extended to customers with which the employer could still do business. However as the period of the restriction was only for 6 months the Court of Appeal held that it was this shortened restricted period that had a great influence on the covenant’s overall reasonableness.

Commercial Agreements

Merlin also shows that wide restrictive covenants are more likely to be enforceable if the employer and employee enter into a separate commercial agreement. In this case the employee had a substantial client base which the employer purchased the goodwill in. The goodwill purchase agreement contained its own 12 month non-compete and was entered into separately from the employment contract. The High Court stated that the purchase agreement was similar to a business sale agreement. In a business sale agreement the parties are considered to have equal bargaining power and as such the agreement can contain more onerous restrictive covenants. This judgement may prove of value to employers who take on senior employees and they should consider the benefits of a separate commercial agreement.

James Haley, Solicitor at Just Employment Solicitors

James Haley, Solicitor & Director, Just Employment Ltd.

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