Restrictive covenants - are you looking at the whole picture?

28-06-2012 13:21

CEF Holdings Ltd and another v Mundey and others [2012] EWHC 1524 9(QB)  In this case the High Court decided to refuse an application for an order to enforce restrictive covenants against former employees.

The covenants, if enforced, would have restricted a number of individuals from competing with their former employer or employing former colleagues.  

The case was decided in favour of the employees on the basis of the following:  

Comparable restrictions

There were no restrictions or covenants placed upon the employee’s managers. This undermined the argument that the covenants were in place to protect a legitimate business interest (which is a criterion that restrictions must meet to be enforceable).

The drafting of the covenants

There were flaws in the drafting of the covenants themselves.  They were unreasonably wide in seeking to prevent the employees from soliciting other employees who they would not have had any contact with in the course of their employment. The wording was also unclear as to who the employees would be able to solicit. 

Other contractual terms

The fact that the employees only had to give one weeks’ notice also further undermined the company’s argument that there was a legitimate business interest to protect. 

This case serves as important a reminder that restrictive covenants should be drafted carefully. It has also notably established that an employer must look at the wider picture when considering implementing or updating covenants into employee’s contracts in order to protect the business.  The wider picture includes considering the covenants in their colleagues contracts and considering the length of the employee’s notice periods. 

If you require any further information please contact Christina Merrington.

Go back