Restrictive Covenant Enforced Despite Drafting Error

Readers will be aware that restrictive covenants – sometimes known as post-termination restraints – are clauses in a contract of employment that are designed to protect an employer’s business when an employee leaves. Common examples include prohibitions on:

  1. Competing with the old employer
  2. Soliciting business from the clients of the old employer
  3. Dealing (doing business) with the clients of the old employer
  4. Poaching key members of staff from the old employer

The attitude of the courts towards the enforcement of restrictive covenants has been that they are invalid unless they go no further than is reasonably necessary to protect an employer’s business. Furthermore, the courts would not enforce covenants that were drafted too broadly. For example, the courts would not rewrite a clause preventing competition anywhere in the world, to prevent competition within a 30 mile radius, simply to be able to give effect to the clause…

…or so we thought. However, the recent case of Prophet PLC v Huggett [2014] EWHC 615 (Ch) had an unexpected outcome. In this case, the High Court was concerned with a 12 month non-compete clause which – on a literal reading – only prevented a former employee from competing if the nature of the competition was to sell the products of the former employer. In practical terms, this restrictive covenant offered the employer no protection at all because no other company would be selling the products of the employer. However, on 11th March 2014, the High Court delivered a judgment whereby the relevant clause was deemed to have a drafting error and the words ‘or similar thereto’ were read into the clause. In doing this, the Court was able to give effect to the intention of the parties at the time the employment contract was signed, and an injunction was granted.

This is a decision of the High Court, and readers will be aware that it is not binding upon the Court of Appeal or Supreme Court. However, the decision does appear to follow the direction of travel in other areas of English law. For example, the recent Supreme Court decision in Marley v Rawlings [2014] UKSC 2 concerned whether invalid wills should be rectified to give effect to the intention of the parties. In this case, a husband and wife had signed mirror wills leaving all property to each other, and then to Mr Marley, whom they had treated as a son. However, due to a clerical mistake Mr and Mrs Rawlings had signed each other’s will and this had not been picked up at the time of signing. Mr and Mrs Rawlings had consequently not signed valid wills, and their natural children asserted that this meant that the property in question (£70,000) should pass to them, rather than Mr Marley. Mr Marley lost in the High Court and Court of Appeal, but when he appealed to the Supreme Court, the Court was prepared to rectify the wills to give effect to the intention of Mr and Mrs Rawlings.

It is interesting that the Courts are now prepared to show more ‘realism’ in the interpretation of restrictive covenants. One cannot help but wonder, though, whether this approach is likely to encourage sloppy drafting of restrictive covenants.

If you would like to discuss restrictive covenants, or any area of employment law, please get in touch with Bedford employment solicitor Andrew Buckley or call 01234 270600. If you need help in Milton Keynes, please contact Maria Gallucci on 01908 202150, or for help in Cambridge contact Nick Sayer on 01223 411421.