Post Termination Restrictive Covenant in Employment Contract Held Not Enforceable
Whenever employees leave a company, there is often concern that they will attempt to take advantage of confidential information, strategic plans, customer and client details or other information about their employer’s business after the termination of their employment. The use of such data could cause serious harm to the former employer’s business. Express restrictions are therefore used by employers in an attempt to avoid this situation. Head of the Employment Team, Pam Sidhu, discusses post-termination restrictive covenants in light of the recent High Court decision in Bartholomews Agri Food v Thornton.
The company was an agricultural merchant, and employed Mr Thornton, an agronomist. Mr Thornton’s role was to provide advice to customers on seed choice, soil condition, and crop planting, rotation and nutrition. Mr Thornton worked for the company for 18 years, starting as a trainee, until his resignation in order to take up a position with a seed retailer.
Clause 10.2 of the employee’s contract of employment included a restrictive covenant preventing 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 the prior approval from the company” for six months after termination of employment. Unusually, it also provided that the employer would continue to pay the employee in full for the duration of the post-termination restriction so long as he did not breach the clause. The company applied for an interim injunction to enforce the restrictive covenant.
High Court Decision
The High Court held that the restrictive covenant was unenforceable. The Court found that the employee was only a trainee when the clause was entered into, some 18 years previously. At that time the employee had no experience and no customer contacts. The terms of the clause were deemed to be “manifestly inappropriate” for such a junior employee. The clause was unenforceable when it was imposed, and remained unenforceable despite the employee’s subsequent promotion to a role where it would have been regarded as reasonable.
Further, the Court decided that the clause was too wide than reasonably necessary to protect the employer’s business interests because it applied to all customers, regardless of whether the employee had any knowledge of, or prior dealings with them. The employee’s customer base actually only accounted for just over 1% of the employer’s turnover. The employee had had no dealings with the remaining customers. Also, the unusual offer to continue to pay the employee for the duration of the post-termination restriction was deemed to be contrary to public policy. Employers should not be able to effectively purchase restraint of trade.
Pam Sidhu advises that when dealing with the enforcement of a restrictive covenant, the Court must consider the restraint of trade doctrine. Any contractual term that restricts an employee’s activities post-termination will be void for being in restraint of trade and contrary to public policy, unless the employer can show that it has a legitimate proprietary interest and the scope of the covenant is no more than reasonable, having regard to the interests of the parties and the public interest.
Pam Sidhu comments: “Many employers are tempted to use standard template covenants in employment contracts, but this would be ill advised. It is critical that post termination restrictive covenants are specifically tailored to the role in question and very precisely drafted. They should also be reviewed as the employee progresses in the organisation and in particular when the employee is promoted to a more senior role. In this reported case, had the covenant been appropriately drafted, the employer would have been able to rely upon it.”
For further information or to discuss any employment law issues, please contact Pam Sidhu or any member of the Employment team on 0121 233 4333.