Enforcement of Post Termination Restrictive Cove..

3rd May 2016
Enforcement of Post Termination Restrictive Cove.. image

Introduction

Quite often in Contracts of Employment, an employer will look to impose upon an employee a number of post termination restrictive covenants.  These are clauses that are designed to protect the business once the employee leaves, e.g. non-solicitation, non-dealing clauses etc.

There has been a recent case which has again highlighted the need to carefully draft restrictive covenants to ensure that they are valid.

The case of Bartholomews Agri Food Limited v Thornton

In this case the former employer, Bartholomews Agri Food Limited, applied to the High Court for an injunction to prevent its exiting employee, Mr Thornton, from working for a competitor.  The case considered the enforceability of a post termination restrictive covenant which read as follows:-

“Employees shall not, for a period of 6 months immediately following the termination of their employment be engaged on 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, (which is West and East Sussex, Kent, Hampshire, Wiltshire and Dorset) or on their own account without prior approval from the Company.  In this unlikely event, the employee’s full benefits will be paid during this period.”

Unfortunately for Bartholomews Agri Food Limited, the High Court refused the application for an interim injunction against Mr Thornton.  This was because the court held that the clause was in restraint of trade and unenforceable.

The court felt that the covenant was clearly far too wide than was reasonably necessary for the protection of the employer’s business interests.  It was held to be contrary to public policy.

How/Why did the Court reach this decision?

In essence for the employer to succeed it had to show that it had a legitimate business interests requiring protection, and that the clause was no wider than reasonably necessary for the protection of its legitimate business interests.

Bartholomews Agri Food Limited argued that Mr Thornton was very much a confidant of its customers, many of whom were small, family-owned businesses working in isolated conditions.  It was argued that the customers therefore placed considerable reliance upon Mr Thornton and his role was very much that of a trusted advisor.  It was argued that as a result Mr Thornton had acquired confidential information about Bartholomews Agri Food Limited’s pricing, services and customer base.

The employer argued that really the clause was a non-dealing clause.  It argued that the clause ought to be enforceable as it was limited in time to 6 months which it felt was no longer than reasonably necessary to provide them with the opportunity to introduce one of their other agronomists to customers having regard to peak farming periods.  It was also argued that it was enforceable as it was limited to the supply of goods or services of a similar nature to those supplied by Mr Thornton in competition with them.  It was also limited to their existing customers, which it was felt was necessary to protect confidentiality and customer connection.

Thornton’s legal representatives argued that the clause did not define confidential information and he denied that he was using confidential information since the names and locations of clients would be publically available.  He claimed to the extent that he had information relating to individual clients, farms and crop yields etc that this was information a farmer would provide to any agronomist with whom he intended to work and would only be relevant to a particular season and was therefore already out of date.  Mr Thornton said that the pricing structure of Bartholomews Agri Food Limited would change from season to season.

The court held that the clause was poorly drafted.  There were no definitions, and it was felt that on one interpretation the covenant prevented Mr Thornton from being able to work in the 6 stated counties at all although Bartholomews Agri Food Limited claimed that this was not their interpretation of the clause.  The court did wonder what was actually meant by the words “of a similar nature”?
The court held that the clause was far wider than was reasonably necessary for the protection of the employer’s business interests.  It applied to all of their customers, regardless of whether Mr Thornton had knowledge of those customers and regardless of whether he carried out any work for those customers.  The court noted that in fact Mr Thornton was responsible for a very small percentage of the customers of Bartholomews Agri Food Limited.

It was also noted that the clause had been entered into in 1997, at a time when Mr Thornton was just a trainee agronomist with little experience and no customer contacts and therefore it terms were totally inappropriate for such a junior and inexperienced employee.

Comments

Daven Naghen, head of our Employment Team has commented on this decision as follows:-

“This case shows again that it is important to carefully draft restrictive covenants in accordance with the particular circumstances of the case.  For example in this instance the drafter failed to properly define the business interests that it sought to protect and then the covenant itself was not relevant to the particular role as when it was drafted Mr Thornton was only a trainee agronomist with no real customer connections or experience.

A covenant will only be enforceable if it protects a legitimate business interests, such as trade connections, trade secrets, confidential information and the stability of the work force.

The covenant must be carefully drafted so it takes into account the employees role at the time the clause is drafted, it reflects the circumstances of the case, it precisely defines the type of restrictive activity and then goes no further than is necessary to protect legitimate business interests.

The trap that businesses and employers often fall into, is that they look for one clause to fit all circumstances and often use precedents from other contracts without a full consideration of the circumstances.  I would strongly advise that any business or employer that is looking to impose post termination covenants upon an employee does obtain legal advice.

If you are an employer or an employee requiring advice about post termination covenants then please contact Daven on 01775 722261 or email daven.naghen@maplessolicitors.com or visit our offices or arrange an appointment at our offices at 23 New Road, Spalding, Lincolnshire, PE11 1DH.


How Banks are Cashing in on Wills image

How Banks are Cashing in on Wills

Recent headlines have reported how banks are now cashing in on Wills.

During the 1990s and early 2000s, banks offered customers low cost Wills (or sometimes even free Wills) but the small print allowed the bank to charge extortionate rates to act as Executors. It is reported that banks are expecting billions of pounds of revenue from their Will writing services and administering estates and in some cases their fees have been over £12,000 to administer an estate as they look to charge a fixed fee PLUS a percentage of the deceased’s wealth.

If you or a loved one has made a Will through a bank we would urge you to check who you have appointed as Executors and check any small print which you may have signed. If you are unsure then please speak with one of our lawyers in the Wills and Probate team who can look at your existing Will with you. It may be appropriate to make a new Will which revokes any previous Will you have made which could save your family thousands of pounds when your estate needs to be administered.

In the majority of cases, when someone has passed away we can provide the family with a quote of how much the legal fees will be so that there are no nasty surprises once the administration is complete.

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