Time to refresh some restrictive covenants?6 April 2016
Last week judgment came out in the High Court case of Bartholomews Agri Food v Thornton  EWHC 648 (QB). This confirmed that the reasonableness of an individual’s restrictive covenants (or ‘protective covenants’ as we increasingly see them called) will be assessed as at the point they were entered in to. Therefore, if a junior employee is signed up to restrictions that are overly restrictive in terms of their breadth (i.e. the type of restrictions) and/or their duration then they will simply be void as being in restraint of trade – irrespective of any subsequent promotion.
In this case, Mr Thornton was a trainee agronomist who joined Bartholomews in 1997. Under his contract of employment from that time, Thornton was subject to a six month non-compete clause with regards to carrying out work for all of Bartholomew’s customers. As the clause was void at the point it was entered in to, the company could not rely on it 19 years later to restrain Thornton from working in a similar role at another company. This follows a similar decision in Pat Systems v Neilly  IRLR 979.
Here the High Court also concluded that the restrictive covenant would have been void even if entered in to when Thornton became a senior employee. It restricted Thornton from undertaking work for any of Bartholomews’ clients regardless of his own dealings with them. On the facts, Thornton worked with just over 1% of the company’s clients (in terms of turnover) but the restriction had no personal nexus (whether that was working for and/or knowledge of the clients). Thus it was a broad, blanket restriction that was unenforceable.
Finally, the High Court considered whether a term allowing Thornton to be fully remunerated by Bartholomews during the six months of the restriction (a potential windfall for him as he would also receive salary from his new employer) made it enforecable. The answer was no as “it is contrary to public policy in effect to permit an employer to purchase a restraint”. Mention was made of a similar term (in that case in a severance agreement) that was found to be unenforceable in the case of JA Mont (UK) Ltd v Mills  IRLR 1782.
Bartholomews’ application for interim injunctive relief was refused.
As a reminder: Restrictive covenants are void as restraint of trade other than where they are necessary to protect the legitimate business interests of a company. Restrictions should always be tailored to the individual’s role as at the time they are entered in to. To maximise the likelihood of enforceability the restrictions should be the minimum necessary for the particular legitimate business interests they are said to protect. However, it is still possible to protect a business with bespoke restrictions.
To read the full judgment click here.
If you would like to speak to one of our team about updating restrictive covenants then email Lucy Truscott on firstname.lastname@example.org or call 0203 178 5362.