24 October 2013

Reasonable restrictive covenants

The trend in the cases favours the employer 

The courts continue to take a more employer-friendly view of restrictive covenants in employment contracts (and by extension, in other forms of agreement such as business sales and shareholders' agreements). In Coppage v Safety Net Security Ltd the Court of Appeal was forgiving toward features of the covenant once thought fatal: a non-solicitation clause (an agreement not to poach customers) was upheld even though its wording would include former customers, with no retrospective time limit, and could potentially apply to customers with whom the employee had no personal dealings. The court seemed to be prepared to accept what might otherwise be unreasonable restrictions, if the period for which they applied was short - in this case six months. The short period was a "fundamental consideration of reasonableness" and "a powerful factor in assessing the overall reasonableness of the clause".

The case was about non-solicitation clauses; the attitude to non-compete clauses (excluding the employee from a business sector completely) might well be less sympathetic.

Covenants must always be carefully crafted for the particular situation, but the court will look at the overall facts as much as the wording of the covenant. The law says that the reasonableness of the covenant must be judged when it is entered into, but the court seemed to stretch that rule where it believed the employee had behaved badly and the claimant was a small business protecting a few customers against blatant poaching.

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