Amending then Enforcing a Restrictive Covenant

It is commonly accepted that restrictive covenants contained in an employment contract will not be enforceable unless the employer can show that it has legitimate business interests requiring protection and that the covenant is shown to be no wider than is reasonably necessary for the protection of those interests.

Assuming both grounds are established, the court then must exercise its discretion as to whether or not to grant an injunction so as to enforce the terms of the clause.

In order to assess the reasonableness of the protection, the courts will look carefully at the wording of the clause both in terms of its scope and the length of the restriction being imposed and will review that within the context of the circumstances of the business which prevailed at the time that the covenant was entered into.

It has long been accepted that if the court considers that any particular covenant is too wide, the court is entitled to strike out any words which would render the covenant too wide and enforce what is left providing that the covenant would still makes sense. This is commonly known as “blue pencil” test.

However, in the recent case of Prophet Plc v Huggett [2014] EWHC 615 (Ch) Mr Justice Donaldson (as he now is) appears to have gone a stage further. The claimant was a supplier of software products to the fresh produce industry. The defendant was a sales manager who had handed in his notice in order to join a competitor. The claimant sought an injunction to prevent his from competing with the claimant in his new role.

At trial, the judge was presented with the “non-compete” covenant which the claimant wished to enforce but which the claimant explained would effectively be meaningless if it was enforced strictly as it had been drafted. The simple drafting error that had been made was that the clause was expressed to prevent the employee from

 “being…engaged, employed, concerned or interested in connection with any products in, or on which he/she was involved whilst employed hereunder”.

Counsel for the claimant submitted that this clause was ineffective as drafted because there was no other company that manufactured exactly the same [software] products as the claimant’s company and if the clause was enforced as drafted it would not provide the protection that the claimant sought.

The judge was inclined to agree that this could not have been what the clause intended and therefore asked both counsel to submit an amendment which would reflect the meaning the parties intended it to have. The defendant’s counsel could not put forward an alternative version. The claimant’s counsel put forward a form of words which sought to prevent the employee “from being directly involved in the provision of business process computer software designed for the fresh produce industry”.

The judge was not prepared to adopt that set of words but stated that even though neither party had been prepared to put forward the suggestion that he had decided to adopt, he chose to interpret the covenant by adding the words “or similar thereto” at the end of the clause.

On that basis, and on the facts of the case, the judge proceeded to grant an injunction against the defendant in the form of the [now amended] restriction contained in the employment contract. Though apparently a minor amendment, the impact of the decision was significant. The defendant had already given up his employment as a sales manager for the claimant company. He had been released early in order that he could take up employment with his new employer as a sales person with particular experience in the fresh produce sector. The defendant had given evidence that if the injunction was granted he would not be able to take up the employment he had been offered and would find it virtually impossible to take up employment elsewhere whilst the injunction remained in place. On the strength of that evidence the granting of an injunction was likely to have a significant impact on the defendant.

No doubt the judge was influenced by the fact that he had regarded the rest of the defendant’s evidence as unreliable. Even so, the decision to extend the scope of the covenant when it was clear that it would have such an impact appears to be an interesting development of previous case law in this area.