Employers are reminded of the importance of carefully drafted post-employment restrictions
It is well established that only those restrictions which go no further than is necessary to reasonably protect a legitimate business interest of the employer will be enforceable. The drafting of such clauses is key, and often the subject of close scrutiny by Courts where disputes arise.
In the recent case of Prophet plc v Huggett, Prophet was a software developer and supplier to the fresh produce industry. Mr Huggett had been employed by Prophet as a sales manager, before leaving to join K3 Business Solutions Limited (K3), which was also a software developer.
When Mr Huggett left employment with Prophet, he was subjected to a restrictive covenant that prevented him, for a period of 12 months, from being involved with a direct competitor of Prophet. However, the covenant was subject to Mr Huggett being involved in connection with a competitor that themselves produced the types of product that he had previously helped produce for Prophet.
Ultimately, because no other Company or competitor produced or sold the products that Prophet had previously sold (and which Mr Huggett had worked on), the restrictive covenant, on a literal reading, offered Prophet no protection.
At the first instance hearing, the High Court held that the words “or similar thereto” should be inserted into the clause to extend its meaning to similar products to Prophet’s (as had probably been intended). It also considered reasonable person would have understood the clause to mean by the use of its language.
Mr Huggett’s appeal against this decision was unanimously upheld by the Court of Appeal.
The Court of Appeal ruled that the clause was clear in its meaning (despite the anomalous effect of it) and it would not therefore be correct to insert words into the clause. It was not the wording of the clause that was found to be erroneous, rather, the thinking (or lack thereof) of the person who drafted the clause.
Whilst there are occasions where it is appropriate for a Court to interpret ambiguously drafted clauses in a commercially sensible manner, on this occasion, the clause was not ambiguous.
Restrictive covenants are extremely important in protecting an employer's business interests by limiting exiting employees from soliciting or dealing with key clients post-employment, or from going to work for a direct competitor.
If a restrictive covenant is drafted too widely (or too narrowly), it is unlikely to be enforceable – which, as this case demonstrates, could be very costly for a business. In order to have effective restrictive covenants, employers must address their minds to the business interest they are trying to protect – a “one size fits all” approach simply will not do.
Given the complexities in this area, seeking legal advice on such clauses is often the best way to protect against costly consequences.