Employment Law Update - Are your restrictive covenants enforceable?
In the recent case of Tillman v Egon Zehnder Ltd [2017], the Court of Appeal overturned an original judgement of the High Court. The appeal held that a six-month non-compete clause that prevented the employee from being "concerned or interested in any business carried on in competition" after termination of employment was unenforceable as it would bar her from being a shareholder in a competing business.
This does raise an important issue regarding whether restrictive covenants within the contract of employment are too wide and therefore unenforceable. Also, if you are relying on a one size fits all policy when drafting restrictive covenants, it risks them being unenforceable.
Certain restrictive covenants will be enforceable, if you are able to prove that they are:
- reasonable
- necessary to protect legitimate business interests; and
- of a duration no longer than is necessary to protect those interests
What is reasonable?
What counts as a reasonable restrictive covenant will depend on the nature of your business. For example: a restriction preventing a worker from soliciting your business or clients is more likely to be imposed than a covenant which simply prohibits contact with any customers or clients, many of which the employer may never have had contact with.
What is a legitimate business interest?
It may be legitimate to restrict a Sales Manager from working for a competitor for a period of 6 months anywhere in the UK if they have a presence throughout the UK. However, it would not be legitimate for the same restriction to be applied to a junior sales assistant who only operates in one region.
What is a reasonable duration?
It is rare that a restrictive covenant will be enforceable if it lasts for over 12 months, unless there are exceptional circumstances. A restriction of no more than 6 months, is advisable, provided that they are reasonable and necessary to protect a legitimate business interest (as outlined above).
Overall, remember that you cannot restrict someone from trading and therefore a blanket ban on a person working for a competitor is very unlikely to be enforced by the courts.
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