The Enforceability of Restrictive Covenants

The case of Bartholomews Agri Food Ltd (Bartholomews) v Thornton concerned an application by Bartholomews in which it sought to enforce the terms of a restrictive covenant contained in Mr Thornton’s contract of employment.

In order to rely on the restrictive covenant, Bartholomews had to demonstrate that it had a legitimate business requiring protection and that a clause in the restrictive covenant, on its true construction, was no wider than was reasonably necessary for the protection of those interests.

Background

Bartholomews is an agricultural merchant supplying products and services to the agricultural sector. Mr Thornton had been employed by Bartholomews since 1997, where he started as a Trainee Agronomist. His role was to provide Bartholomew’s customers with agronomic advice.

Mr Thornton resigned on the 21st December 2015 and on or around 22nd March 2016, on the expiry of his notice period, intended to take up employment with Pro Cam UK Ltd. Pro Cam UK Ltd is a retailer which supplies its customers with seed from multiple seed producers.  

The Application

Bartholomews applied for an interim injunction to enforce the terms of a restrictive covenant contained in Mr Thornton’s contract of employment. Clause 10.2 of Mr Thornton’s contract of employment, purported to prevent him engaging in work supplying goods and services “of a similar nature” to Bartholomews’ customers for a period of 6 months immediately following the termination of his employment.

Mr Thornton claimed the covenant was unenforceable and the Court agreed. The Court considered the covenant was a restraint of trade and therefore was unenforceable. The application for an interim injunction was refused.

Reasons for the decision

The Court highlighted three key points for its reason to refuse the application:

  1. The covenant had been originally imposed on Mr Thornton when he started work for Bartholomews as a Trainee Agronomist in 1997 and when he had no experience or customer contacts. Such terms were considered to be manifestly inappropriate for a junior employee. If the covenant was unenforceable at the time it was agreed, it remained unenforceable regardless of Mr Thornton’s promotion to a role where such a covenant might have been regarded as reasonable.  
  2. The Court also considered the covenant was wider than reasonably necessary to protect Bartholomews interests. The covenant applied to all customers of Bartholomews regardless of whether Mr Thornton had dealt with them or carried out any work for them. Mr Thornton in fact, was only responsible for just over 1% of Bartholomews’ turnover and the Court suggested the covenant might have been reasonable if it had referred only to those customers with whom Mr Thornton had dealings with.
  3. Clause 10.2 provided for Mr Thornton to be paid during the period the restrictions were in force, provided he complied with the restrictions. The Court said this element of the clause did not weigh in favour of the enforceability of the restrictions and that instead, the effect of such a provision would be to allow an employer to purchase a restraint of trade.

Ensuring your restrictive covenants are enforceable

Employers should regularly review and update the restrictive covenants contained in the contracts of employment of ‘key members of staff’ and in particular, on each promotion or role change of an employee. Such restrictive covenants should not impose an unreasonable restraint of trade and should not be drafted any wider than necessary to protect the employer’s business interests.

It is important that restrictive covenants are only contained in contracts of ‘key members of staff’ and that they are tailored to their particular roles within the business. Employers who have generic restrictive covenants contained in contracts of employment of ‘all members of staff’ often find it very difficult to persuade third parties and the ex-employees the covenants are capable of being enforced, leaving themselves with no protection.

If you have any questions arising from this article or would like further information on the enforceability of restrictive covenants, please get in touch with a member of our Employment team