Many employers heaved a sigh of relief following the decision of Mr Justice Donaldson in the case of Prophet PLC –v- Huggett. In that case, he had been faced with a restrictive covenant in an employment contract which, on its true, proper and literal construction, would have had no effect. The clause was expressed to prevent the former employee from:
‘Being … engaged, employed, concerned or interested in connection with any products in, or on which he/she was involved whilst employed hereunder’.
In a literal construction, it was common ground that, since there was no other company that manufactured exactly the same [software] products as the claimant’s company, if the clause was interpreted literally, it would have no effect.
The judge at first instance was persuaded that this could not have been the intention of the parties and chose to interpret the covenant by adding the words ‘…or similar thereto’ at the end of the clause. This was not a suggestion made by counsel for either of the parties and, against the background of the prevailing law, it was difficult to understand his justification for doing this.
In a previous article dealing with the first instance decision, we commented that the judge may well have been influenced by the fact that he had regarded the rest of the defendant’s evidence as unreliable.
We can now report that the Court of Appeal has reversed this decision, indicating a refusal to re-write an unambiguous, but commercially meaningless, restrictive covenant in order to make if commercially effective. The court took the view that it did not believe that anything had gone wrong with the drafting, it was just that the person who had drafted the covenant had not thought through its effect. Insofar as the court did have the power to interpret the clause so as to give rise to a commercially sensible outcome, this power was limited to situations in which it was first of all determined that the covenant was ambiguous. If that ambiguity led to one interpretation of it, giving rise to a meaningless outcome and the other interpretation of it giving rise to a commercially sensible outcome, then, in those circumstances, the court confirmed that it did have power to adopt the commercially sensible interpretation.
Summary
The brief window of hope for employers that the courts might be prepared to interpret these restrictive covenants more liberally appears to be over. The court will continue to construe these clauses strictly and in accordance with the well-established principles set out in earlier cases.