Not for Prophet
Employers can protect their business from ex-employees by including restrictive covenants within their contracts of employment. Such covenants have to be very carefully drafted for them to be enforceable because for an employer to be able to rely on a restrictive covenant, the covenant cannot go any further than what is reasonable to protect the employer’s legitimate business interest. The covenant would usually have to be limited in its duration, scope and the geographical area which it covered. Even if the restrictive covenant is clear, it may still be struck out if the Court is of the view that the restriction is too onerous.
It has usually been the case that, where possible, the Court would simply strike out an offending clause to make the covenant more reasonable rather than re-write the wording. This has meant that employers have been unable to enforce badly drafted restrictive covenants to protect their business interests when a key employee has left.
However, the recently reported case of Prophet Plc –v- Huggett is a surprising exception to this rule.
Mr Huggett was the UK Sales Manager for Prophet Plc, a software developer for the fresh produce industry. He resigned to join K3 Business Solutions Limited, one of Prophet’s direct competitors. Prophet sought an Injunction to prevent Mr Huggett from starting work with K3 on the basis that his employment contract contained a “non-compete” covenant preventing him from selling any products which he was involved with during his employment with Prophet for a period of twelve months following the termination of his employment with them.
The High Court found that there had been an error in the drafting of that covenant in that if read literally, it was ineffective to protect Prophet because none of its competitors would actually sell Prophet’s products and those were the only products which Mr Huggett would have been involved with during his employment with Prophet.
However and very surprisingly, the Court found that the intention behind the covenant had clearly been to prevent Mr Huggett from selling products similar to those of Prophet and to make the covenant effective it added the words “or similar thereto” to the restrictive covenant. The Court found that the covenant as re-drafted was enforceable and therefore granted Prophet the Injunction it was seeking.
While it is common for Court to delete unenforceable parts of a covenant, this decision is highly unusual in that the Court added words to make it commercially effective and enforceable.
However, it should be noted that in this case the Judge found Mr Huggett to be a “thoroughly unreliable witness” and this appears to have influenced his decision. Had Mr Huggett been a more credible witness then Prophet could well have found that they were unable to enforce the restrictive covenants in Mr Huggett’s employment contract.
This case demonstrates the wide discretion which the Courts have when considering the enforceability of restrictive covenants. However, this is a highly unusual case and is contrary to the usual principle that the Court will not re-write the contract for the parties. It is unlikely that this case represents a fundamental change in the approach by the Court and employers should continue to ensure that the restrictions contained in employment contracts are properly drafted and if employees change roles or are promoted those restrictions are updated accordingly.
We at Blacks deal with the drafting of employment contracts, to include restrictive covenants, and any disputes arising therefrom.
Please contact Luke Patel
on 0113 227 9316
or by email at LPatel@LawBlacks.com