Expertise and advice so you're always one step ahead - sign up to receive the latest legal updates, events & seminar news
HomeInsights & thinkingDifficulties of enforcing restrictive covenants in employment contracts
Difficulties of enforcing restrictive covenants in employment contracts
04 July 2012
A recent High Court case highlighted some of the difficulties employers can face in trying to enforce restrictive covenants in employment contracts.
In the case – CEF Holdings Ltd v Mundey and others – the application to restrict a group of individuals from competing with their former employer was refused by the court.
Any contractual term restricting a worker’s activities after termination is void for being a restriction on trade unless the employer can show that it is reasonable and necessary to protect a legitimate business interest.
In this case, a number of CEF’s staff, including two managers, joined a business that had been set up in competition. Although the managers had no restrictive covenants in their employment contracts, CEF argued that they were in breach of the duties they owed to CEF and also, had sought to entice CEF’s staff to join the competitor. The remaining defendants did have express restrictions in their employment contracts.
CEF also applied for a ‘springboard injunction’ – a mechanism to prevent the managers gaining an unfair early advantage in the marketplace by using contacts they had made while with CEF.
The express employee restrictions were invalid because their terms were unreasonably wide. In reaching this decision, the court took into account the absence of comparable restrictions for the managers and also the fact the employees only had to give a week’s notice. Both these facts undermined CEF’s argument that they had a legitimate business interest to protect.
The court rejected the application for a springboard injunction because of the absence of post-termination restrictions in the managers’ contracts and since they owed no fiduciary duty to the company.
Restrictive covenants need to be expertly and carefully drafted. Whether or not they are enforceable is at the discretion of the court and the effect of any given restrictive covenant will be dependent on the facts of each case. Just because they are written down in a contract does not necessarily mean they are enforceable.
From an employer’s viewpoint, the CEF case shows that covenants and length of notice periods in colleague’s contracts are clearly now taken into account by the courts when deciding whether the restrictions are reasonable or not.
As always, if you need commercial and pragmatic employment law advice, we’re here to help so please get in touch.
Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
In November, the government published the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (the draft regulations), and are due to come into force on 1 January 2024.…
The government today outlined some key financial changes for workers in 2024 as part of this year’s autumn statement. National insurance Firstly, the 12% rate of employee national insurance contributions…
In this free webinar our experienced employment and business immigration lawyers guide you through the process for carrying out right to work checks in your organisation. Along with plenty of…
Our website uses cookies to improve your experience while you navigate through our website. Out of these cookies, the cookies that are categorised as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyse and understand how you use our website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies but it may affect your browsing experience on our website. You can find our cookie policy here.
Necessary cookies are absolutely essential for our website to function and enable core functionality such as security and accessibility. These cookies do not store any personal information. You can block these cookies by changing your browser settings, but this may affect how the website functions.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Cookie
Duration
Description
__cf_bm
30 minutes
This cookie, set by Cloudflare, is used to support Cloudflare Bot Management.
mgref
1 year
This cookie is set by Eventbrite to deliver content tailored to the end user's interests and improve content creation. It is also used for event-booking purposes.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Cookie
Duration
Description
_ga
2 years
The _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gat
1 minute
This cookie is installed by Google Universal Analytics to restrain request rate and thus limit the collection of data on high traffic sites.
_gid
1 day
Installed by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
G
1 year
Cookie used to facilitate the translation into the preferred language of the visitor.
vuid
2 years
Vimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.