Bartholomews Agri Food Limited v Michael Thornton – Unreasonable Restrictive Covenant Declared UnenforceableAugust 19, 2016
A restrictive covenant is a clause in an employment contract which is designed to prevent the solicitation of customers, clients, suppliers, other employees, or general competition for a defined period after the employee ceases his or her employment. The purpose of it is to protect the employer’s confidential information, customer connections, its goodwill and the stability of its workforce. However, it is important to note that such covenants are not always appropriate or even enforceable. This article will examine a recent case in which the restricted covenant was declared unenforceable.
Facts of the Case
Mr Thornton (the “Respondent”) worked for Bartholomews Agri Food Limited (the “Applicant”) as an agronomist. The Respondent started his employment in 1997 as a trainee and over the next 18 years, despite taking a de facto more senior role, remained on the same contract throughout. This contract contained a restrictive covenant whereby for the period of 6 months after termination the Respondent was forbidden to work in a similar field in a way which would compete with the Applicant within its trading area (defined as 6 counties in the south of England) without approval. If approval was not given, the Respondent would receive “full benefits” during this period. In this case the Applicant was attempting to obtain an injunction against the Respondent, who had now left to work for a competitor, to enforce this restrictive covenant.
On 23 March 2016 the High Court held that this restrictive covenant constituted a restraint of trade and was unenforceable. There were a number of reasons why this was the case:
The restriction was too broad in scope;
The restriction was inappropriate for the Applicant’s level of seniority; and
The attempt to buy restraint contained at the end of the clause was considered to be unusual and against public policy.
The Court was critical of the drafting of the clause and noted that it could lead to multiple interpretations. On one reading it could constitute a prohibition on working in the six specified counties at all (though this was not the Applicant’s position in Court). In any case it was described as “manifestly inappropriate” for a trainee and remained inappropriate despite the Applicant’s de facto promotion.
A key point was the fact that the restrictive covenant applied to all customers of the Applicant regardless of whether the Respondent had carried out work with them. The Court noted that “the Respondent was responsible for just over 1% of Bartholomews’ turnover. It follows that the remaining 98% plus of turnover was generated by customers with whom the Respondent did not directly deal”. Therefore the Court concluded that the restriction which the Applicant was attempting to enforce was wider than what was necessary to protect its legitimate business interests.
Employers are understandably concerned that departing employees may approach or deal with clients, suppliers or colleagues in a way which will have a negative impact on the business. However, it is important to remember that when dealing with restrictive covenants the starting position is that they are a restraint of trade and will be unenforceable unless if they go no further than what is reasonably necessary to protect the legitimate business interests of the employer.
Therefore, there are a number of lessons which can be learned from this case in terms of understanding what is and is not considered to be reasonable:
A restrictive covenant is highly unlikely to be appropriate for a trainee or junior employee;
When junior members of staff are promoted their contracts should be reviewed and updated so that they are appropriate for their level of seniority;
Make sure that restrictions are limited to a logical group of people or geographical area. In this case the Court noted that “if the clause had provided that the Respondent could not, for 6 months, deal with or solicit customers with whom he had dealt with for a period of time before the termination of his employment that would have been sufficient”;
Make sure that the restriction is suitably detailed so as to provide a degree of certainty on what is prohibited and to avoid multiple interpretations; and
Do not waste money attempting to buy restraint as this case shows that this will not make an unreasonable restrictive covenant enforceable.
Please note: The content of this article is for information purposes only and further advice should be sought from a professional advisor before any action is taken.