Employers who want to prevent unfair competition from former employees must have suitably tailored contracts

Many employers wish to prevent employees who leave from unfairly competing with them for a reasonable time after their departure.  Courts regularly grant injunctions enabling employers to prevent unfair competition but the point repeatedly made by the courts is the need for an appropriately tailored contract to do so.  The case of Bartholomews Agri Food Limited v Thornton reinforces the need for new restrictive covenants to be agreed when an employee is promoted to a more senior position.

Facts
Bartholomews Agri Food Limited (“Bartholomews”) is an agriculture merchant supplying a wide range of products and services to the agriculture sector including the provision of agronomic advice to farmers, land owners and managers.  Mr Thornton was employed as a trainee agronomist in September 1997.  On joining, he was required to sign a contract which included a standard set of terms and conditions containing a clause purporting to prevent employees for a period of six months following the termination of employment from being engaged on work or supplying goods or services which competed with Bartholomew to any trade competitor of Bartholomews in six named counties in the South of England (“the Restrictive Covenant”).

Although Mr Thornton never signed a new contract and his job was never given any other formal job description, in reality he progressed well beyond a trainee agronomist and became an important employee of Bartholomews.  He was described by Bartholomews as a “trusted adviser” to 52 of its clients.  Not only did Mr Thornton have a close connection with Bartholomews’ customers, he had information about individual farms, such as yields, and also had knowledge of Bartholomews’ pricing structures and plans.

Mr Thornton gave notice of his resignation on 21 December 2015 and indicated that with effect from 22 March 2016 he intended to take up employment with a retailer which supplied its customers with seed from multiple seed producers.  Mr Thornton said that this was a different role from that which he performed for Bartholomews, although he also said he did wish to continue to deal with and provide advice to some of Bartholomews’ customers if they were prepared to follow him.

There was an unusual provision in the contract which said that if Bartholomews sought to enforce the Restrictive Covenant for six months, it would pay Mr Thornton his usual salary for those six months.

Bartholomews sought an injunction from the High Court (“the Court”) to enforce the Restrictive Covenant and to prevent Mr Thornton working for the new employer for six months.


Decision
The Court refused to grant the injunction.

First, the Court applied the well-established rule that a contract has to be interpreted on the date it is entered into.  The Court said that a restriction of the kind in this standard contract was “manifestly inappropriate” for a junior employee such as Mr Thornton had been at the time he entered into the contract.  In this, the Court followed earlier decisions where injunctions had not been granted against employees who had been promoted during the course of their employment and new covenants had not been entered into at the time of the promotion. 

Second, the Court applied the well-established principle that a covenant restraining soliciting or dealing with customers has to be restricted to those customers with whom the employee dealt.  This was not the case here. 

Finally, the Court refused to take any account of the fact that the employer was prepared to pay salary for six months.  It said that this was contrary to public policy in that it purported to permit an employer to purchase a restraint of trade. 

Comment
The three key points for employers to take away from this decision are that:

  1. There is no point in offering to pay for restrictive covenants.  In English law, covenants are either enforceable as a reasonable protection of an employer’s business or they are not.  Making a payment does not assist;
  2. Covenants need to be well drafted to be enforceable, including, for example, limiting a restriction upon soliciting and dealing with customers to those customers with whom the employee dealt during the course of his employment; and
  3. Most importantly, employers must ensure that a contract is signed with an employee relevant to their position in the company and providing reasonable protection in relation to that position.  If an employer wishes to have the protection of these kinds of restrictions it needs to update the covenants whenever an employee significantly changes his or her role.  It will be important to focus upon the protection which is reasonably necessary in relation to the job which the employee is expected to be doing at the end of the contract, if any such covenants are to be enforceable.

Search our site