The importance of having carefully drafted restrictive covenants


Providing a reminder of why restrictive covenants have to be carefully drafted, the High Court resoundingly rejected the reasonableness of a restrictive covenant in an employment contract on various grounds.

1. A covenant which was unenforceable when it was first imposed, remains unenforceable regardless of whether the employee is later promoted to a role where it could be regarded as reasonable. The covenant was in place when the employee first entered the business as a trainee agronomist in 1997. At that time he had no experience or customer base; therefore a non-compete clause which prevented him from working with any of the employer's existing customer base for six-months was manifestly inappropriate and in restraint of trade. On that basis alone, the covenant was unenforceable. 2. The terms of the covenant were drafted too widely to be unreasonable even after the employee's 20-year career. It sought to prevent the employee from dealing with any customer of the employer regardless of whether he had had any prior dealings with the customer. Given that the employee worked with customers who represented only 2% of the company's overall turnover, it would be manifestly unfair to prevent him from working with customers representing the other 98% of the employer's existing customer base. 3. The Court was not persuaded by an unusual term of the clause which provided that the employer would continue to pay the employee in full during the six-month period. It would be contrary to public policy to allow an employer to 'purchase' a restraint of trade.


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