Restrictive Covenant in Contract Passes Reasonableness Test

November 23, 2017 12:09 pm

Restrictive covenants in employment contracts involve the imposition of restraints on employees personal freedom and have to be reasonable to be enforceable. In one case, the High Court ruled that a clause in an engineers contract that prevented him from working for competitors for 12 months passed that test.

The engineer worked for a company that specialised in making high-tech consumer goods and was obsessed by maintaining the confidentiality of its research. He was put to work on a secret project to develop a new electric car shortly after he had received a conditional offer of employment from an electric car manufacturer. He did not inform his employer of that development.

His employment contract contained a restrictive covenant that, amongst other things, forbade him from working for any company that operated in a similar field to his employer for a 12-month period after leaving his job. After the car manufacturers offer was made final and the engineer announced his resignation, his employer launched proceedings to hold him to the terms of the covenant.

Employment ContractHe argued that the covenant, which had a worldwide reach, was void in that it placed excessive restraints on his freedom to make a living. However, the Court found that the restrictions were no wider than was reasonably necessary to protect the employers commercial interest in preserving its trade secrets.

What was the outcome?

The Court acknowledged that the engineer and the car manufacturer had acted in good faith and that there was no reason to suspect that the engineer intended to divulge his employers confidential information to the car manufacturer. However, the purpose of the covenant was not merely to restrain deliberate disclosure of confidential information and there was a real risk of innocent breach.

Whilst expressing sympathy for the engineer, the Court noted that he was largely the author of his own misfortune in unwisely failing to tell his employer of the conditional offer he had received before embarking on the secret project. The Court issued an injunction restraining him from taking up his new post for 12 months from the date on which he left his job.

Our Employment Specialist, Lucy Watson, noted that “more and more contracts of employment contain post termination restrictive covenants” and to “be sure to check your contracts and understand what restrictions are imposed on your post termination, prior to signing your contract.”

At Tayntons, we can advise you on the possible implications or if you’ve found yourself in a position where your employer is enforcing restrictive covenants. Call us today on 0800 158 4147 for an initial £50 plus VAT consultation with our Employment Specialist.