Protecting your business interests
Restrictive covenants can be used as a tool to protect the business interests of the company. They should be bespoke to the needs of the employer, be considered ‘reasonable’ and be no wider than is necessary to protect the legitimate proprietary interest.
Such interests may include customer lists, connections, confidential information or trade secrets. Any post-termination restrictions would normally be included within the employment contract; it should be noted that if formulated incorrectly, a restriction may be considered a restraint of trade contrary to public policy and therefore void.
How not to apply a restrictive covenant
The fairly recent case of Bartholomew’s Agri Food Limited and Thornton demonstrates the requirement for clearly defined well-constructed restrictions, the importance of regularly reviewing terms and how NOT to use geographical parameter restrictions.
Firstly, the courts were critical of the restrictions being issued when the employee was a trainee agronomist, with little experience and no real customer connections; the terms were found to be ‘manifestly inappropriate’ at the time for a junior employee.
Interestingly the court dismissed the argument that the employee had never been promoted, inferring that restrictions should develop with the progression of the employee and be tailored to their particular career situation.
Secondly, the restrictive covenant was simply too wide.The reality was that the respondent only had direct dealings with just over one per cent of the total customer base for Bartholomew and therefore it was unreasonable to restrict future dealings with the others that the respondent had never spoken to.
Lastly, the terms were so badly constructed that if read one way the implication was that the respondent would be unable to work at all in the geographical locations set out in the restrictions.The court was wholly unimpressed with the inclusion of the term ‘of a similar nature’ when referring to other businesses the respondent would be prohibited from working within. They were also critical of the inclusion of several counties where Bartholomew did not actually have any clients.
Getting it right
Restrictive covenants can be complex and it is crucial that the employer knows exactly what they are seeking to achieve when considering their formation and what specific terms are required to ensure they are enforceable. From the employee’s perspective they should be absolutely sure that any covenants are fair, reasonable and justified before signing any contract.
If you require any support in drafting restrictive covenants, call one of the team on 0161 884 1888 or email [email protected] for assistance.