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.
IR35: The (delayed) new off-payroll working rules apply from 6 April 2021 Traditionally, contractors like being self-employed because they pay reduced National Insurance contributions, and are able to set various…
The Supreme Court has made a unanimous landmark decision that (mostly female) shop workers at Asda supermarkets can be compared to the (mostly male) warehouse workers, ruling that they are…
Employment lawyers Matthew Clayton and Jenny Hawrot summarise the latest developments on the Coronavirus Job Retention Scheme to emerge. Thursday 18 March 2021 From 1 April 2021, clinically vulnerable people in…
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL cookies.
This 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.
We use performance cookies such as Google Analytics to help us count the number of visitors and to see how visitors move around our website when they are using it. This helps us to improve the way our website works, for example, by ensuring that users are finding what they are looking for easily. The cookies collect information in a way that does not directly identify anyone. For more information on how these cookies work, please see our cookie policy.