- 08 April 2016
The recent case of Bartholomews Agri Food v Thornton has provided some useful guidance to employers who wish to rely on restrictive covenants when an employee leaves. Restrictive covenants (for example that prevent an employee from dealing with the employer’s clients, poaching clients or staff of the employer or working for a competitor) can be difficult to enforce, as highlighted in this case.
Mr Thornton had worked for his employer, an agricultural merchant, since he started as a trainee in 1997. His employment contract contained a restrictive covenant that prevented him from engaging in “work, supplying goods or services of a similar nature which compete with the company to the company’s customers, with a trade competitor within the company’s trading area… or on [his] own account without prior approval from the company” for six months after the termination of his employment. Unusually, it also provided that the company would pay him in full during those six months.
Mr Thornton resigned to work for a competitor and the company tried to enforce the restrictive covenant by seeking an interim injunction at the High Court.
To enforce the restriction the company had to show that it had legitimate business interests which required protection and that the restrictive covenant was no wider than was reasonably necessary to protect these interests. The High Court held that the restriction was not enforceable for the following reasons:
- Restrictive covenants are assessed at the time they are entered into. At the time the contract was entered into (18 years previously) the employee had been a trainee with no customer contacts, so the restriction was not protecting a legitimate interest. The employee was later promoted to a role where the restriction could have been justified, however, he did not re-enter the restrictive covenant at this point and so it could not be assessed from this stage.
The High Court held that the restriction was not enforceable.
- The restriction was far wider than was reasonably necessary as it applied to all customers of the company and its associated companies, regardless of whether the employee had had any relationship with them. The employee was only responsible for just over 1% of the company’s turnover and did not deal with 98% of the customers.
- It made no difference that the company was prepared to continue paying the employee during the period of restriction – permitting an employer to effectively purchase a restraint of trade is contrary to public policy.
This case reinforces the importance of giving careful thought to the drafting of restrictive covenants and makes clear that making payments during the period covered by the restrictive covenant will not impact enforceability. In this case, had the employer issued a new contract to the employee on promotion with a restriction that only prevented him from dealing with customers that he had prior dealings with then it may well have been enforceable.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.
About this article
SubjectPayments to ex-employee during restrictive covenant period made no difference to enforceability
Published08 April 2016
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