All businesses have information which is considered integral and invaluable to its success and which it does not want to be shared, particularly with competitors.
As the year comes to a close you can expect some staff turnover. People will leave and you will take new people on and it is at times like this when you need to make sure that your confidential information is protected and your post-termination restrictions are up to scratch, ensuring that your information is safe.
But as we all know, the enforceability of restrictive covenants is a complex area of law and you won’t get far with a one size fits all solution. These out of the box covenants can land you in the minefield of “unenforceability”, which we see all too often.
Your restrictive covenants need to be three things:
- Reasonable
- Necessary to protect the legitimate business interests
- Of a duration no longer than necessary to protect those interests
And that is just the tip of the iceberg. There are loopholes galore and scenarios which you probably would never even consider that can land you in trouble.
In the case of Bartholomews Agri Food v Thornton, Thornton had started working for Bartholomews in 1997 as a trainee agronomist. He had signed a contract which contained post-termination restrictions but although he was promoted during his 18 years there, he remained on his initial contract.
Thornton resigned and started working for a competitor of Bartholomews, and they unsuccessfully applied for an injunction.
Why was it deemed unenforceable?
- Within the covenant was an unusual provision that Thornton be paid by Bartholomews during the six month period of restrictions, even in the instance that he got a non-competing job. Because of this, Bartholomews were confident that the court would view the restriction as enforceable. Unfortunately for them, this was not the case, as the court viewed it as against public policy to allow an employer to purchase a restraint.
- Because the restrictions were imposed when Thornton was still a trainee, when he did not have any client contacts, the injunction was classed as “manifestly inappropriate”. If the restriction was unenforceable at the time it was made, it will remain this way despite any changes that might have happened to Thorntons employment circumstances.
- You might think then, that it would have been better for Bartholomews to have updated Thorntons covenant when he was promoted. Well, that still wouldn’t have convinced the courts. The restriction went further than necessary to protect the business, as it sought to prevent Thornton from dealing with every single Bartholomews customer.
In contrast to this case is Pickwell and Nicholls v Pro Cam [2016]
Two trainee agronomists who moved to a competitor claimed that their non-solicit and non-dealing restrictions were unenforceable because they were too broad compared to the junior level of their roles, as broached in point two of Bartholomews V Thornton. However in this instance, the court ruled in opposition to their claim because both the employers and trainees knew at the time of signing the contact that the “training” period (which exposed them to the confidential information) was only the starting point for these roles, and that they would become fully qualified in the near future.
How do you make your restrictive covenants stand up in court?
- Restrictive covenants need to be relevant to the role and the level of the employee. Make sure you consider the legitimacy of the risk and the reasonability of the protection that the covenant enforces.
- Always review and update restrictions, especially when employees change roles
- Do not use a “bog standard” clause. Bespoke them with reference to the industry, role, and the seniority of the employee is vital.
- Buying a restraint is a waste of money. Any clause that involves paying an employee during the restriction period will not convince a court to enforce it.