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Court of Appeal restricts the judicial approach to post-termination covenants

A previous blog post, ‘Courts take an employer friendly approach to restrictive covenants’ (19 July 2014), addressed the liberal and employer-friendly attitude the High Court had taken in Prophet plc v Huggett [2014] EWHC 615 (Ch) to redrafting a restrictive covenant. The Court decided that it would be appropriate to add the words ‘or similar thereto’ to a restrictive covenant in order to prevent a former employee from working for a competing company for 12 months. The covenant was worded so as to stop the employee from dealing with any products for a competitor which he was sold during his employment with the claimant. However, as the employee only dealt with products that were exclusively sold by the claimant the literal application of the covenant afforded the employer no protection whatsoever. The High Court therefore felt it was appropriate to add to the wording of the covenant in order to enforce its intention.

This decision was contested before the Court of Appeal ([2014] EWCA Civ 1013). The Court agreed that to apply the literal interpretation of the covenant would make it useless to the employer. However, the Court stated that it could only choose between interpretations of a clause in order to achieve a commercially sensible result where the clause is ambiguous in its meaning and applying the other interpretation would give rise to an absurd result. The clause in question was clear and unambiguous in its drafting and meaning. It was observed that the Court should not change the wording of the clause to achieve a different result just because the practical application of the clause had not been thought through properly. Therefore, the Court of Appeal overturned the High Court’s decision and the injunction granted to the employer was discharged.

This decision is viewed as a sensible return to the established judicial principle that the courts should not interfere with the wording of a restrictive covenant, only judge as to whether they are reasonable or not as phrased in the employment contract. For a court to subsequently change the wording of a restrictive covenant that is drafted by the employer so that it is enforceable would amount to an injustice for employees who are forced to accept these clauses in their employment contracts. Employers should ensure that any post-termination restrictive covenants contained in their employee’s contracts are clear, unambiguous and achieve what the employer is seeking to do.

James Haley, Solicitor at Just Employment Solicitors

James Haley, Solicitor & Director, Just Employment Ltd.

This entry was posted in Employment Contracts, Employment Law, Just Employment Solicitors, Restrictive Covenants, Uncategorized and tagged , , , . Bookmark the permalink.

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