Post-Termination Restrictive Covenants: Are Yours Enforceable?
The recent case of Bartholomews Agri Food v Thornton considered how far an employer can go in restricting the activities of an ex-employee. Natalie Ruane explains.
The recent case of Bartholomews Agri Food v Thornton considered how far an employer can go in restricting the activities of an ex-employee.
The question for the High Court in this case was when should a restrictive covenant in an employment contract be rejected as an unreasonable restraint of trade and therefore deemed unenforceable?
Mr Thornton was employed by Bartholomews Agri Food Ltd (BAF). BAF is an agricultural merchant supplying a range of products to the agricultural sector. As part of his role, Mr Thornton advised customers on issues such as crop planting and rotation and seed choice. He resigned on 21 December 2015. On expiry of his notice period, Mr Thornton intended to take up employment with Pro Cam UK, a retailer which supplied customers with seeds.
In response, BAF applied for an interim injunction to enforce the terms of a restrictive covenant in Mr Thornton’s employment contract. The restriction provided that the employee would not, for six months post termination, be engaged in work, supplying goods or services of a similar nature which compete with BAF to BAF’s customers, working for a trade competitor which was within the restricted geographical trading area where BAF did most of its business (a non-dealing/non-compete clause).
Although the clause in question is not unusual, in this case the Court held that the restrictive covenant in Mr Thornton’s employment contract was unenforceable. The reasons it gave were as follows:
- The clause was imposed when Mr Thorton began working for BAF as a trainee with no experience and no customer contacts, and therefore considered to be inappropriate for a role at that level. Importantly, if a restrictive covenant was unenforceable at the time it was agreed, it would remain unenforceable even if the employee had been promoted to a role where the covenant would be regarded as reasonable, as had happened in this case.
- The restrictive covenant was far wider than reasonably necessary to protect BAF’s business interests, because it applied to all of BAF’s customers and associate companies, even though Mr Thornton only had dealings with 2% of BAF’s actual customer base. In order to be deemed reasonable, the restrictive covenant should have only restricted Mr Thornton’s future dealing with the same customers he had dealt with prior to the termination of his employment. Instead, the Company went beyond what was necessary and the result was that the covenant was unenforceable.
Employers should check employment contracts to ensure that:
- Restrictive covenants are not drafted too widely. The restricted customers, products, geographical area and the duration of the restriction should be limited to ensure that the restriction goes no further than necessary to protect the employer’s commercial interests.
- The contract is up to date. Conduct regular reviews to ensure any restrictions remain relevant and enforceable. This case serves as a reminder that restrictive covenants should be tailored to the employee's position, keeping in mind their experience and reviewed and amended as the employee‘s job changes. It may be necessary to reinstate the covenants by having the employee sign up to a new contract following promotion
For further information or advice on restrictive covenants, contact Natalie Ruane on 01228 552222 or email firstname.lastname@example.org.All Factsheets