Importance of properly drafted restrictive covenants reaffirmed

Posted 19/08/2014

Employers have been reminded again by the courts in a recent case of the importance of accuracy and careful wording in restrictive covenants designed to provide protection against potentially unfair competition by an ex employee. In the case of Prophet –v- Huggett [2014] EWCA Civ 1013 the Court of Appeal highlighted the need for proper care and attention to be given to the relevant wording in an employment contract at the outset (as well as during the lifetime) of an employee’s employment. 

In Prophet, a restriction in Mr Huggett’s employment contract, read literally, prevented him from selling Prophet’s software for 12 months after he left. Mr Huggett joined a competitor selling competing, but not actual, Prophet software. Prophet attempted enforcement of the restriction and the High Court upheld this. It allowed Prophet’s argument that it was clearly the intention of the parties that all competing software should have been included in the restriction even though the clause in the contract did not actually read that way.

The Court of Appeal reversed the decision in Mr Huggett’s favour. Lord Justice Rimer made clear that there may be circumstances in which the Court is allowed to clear up ambiguity to give commercial effect to a deal between the parties. However, where the original drafting was clear and unambiguous (although it led to the opposite result to that intended by Prophet) the Court could not interfere in a ‘bad bargain’. 

If you are considering trying to include restrictive covenants in an employee’s contract, it would be prudent to take professional advice at the outset to ensure that all bases are covered and the contract will do what you intend and ensure that the clauses are reviewed and updated regularly.