Back
We continue to provide our legal services through the COVID-19 lockdown. Please visit our COVID-19 Hub for legal insights, or contact us directly.
Get in Touch Menu

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.

Contact us

 

Contact
Matthew Clayton MA LLM (Cantab), CIPP/E
Partner
View profile
Mathew Clayton
Related services
Share this article
Resources to help

Related articles

Furloughed workers and annual leave

Employment & business immigration

The government has provided some long awaited guidance on the treatment of annual leave for furloughed employees affected by the coronavirus pandemic. One of our senior employment lawyers, Jenny Hawrot,…

Jenny Hawrot LLB (Hons)
Associate, solicitor

Business immigration and COVID-19: FAQ for employers

Employment & business immigration

For employers, keeping pace with employment law guidelines in the light of the coronavirus (COVID-19) crisis is no easy task, and businesses who sponsor workers from overseas face another layer…

Helen Howes LLM
Trainee solicitor

Coronavirus Job Retention Scheme guidance & updates

Employment & business immigration

Our employment lawyers summarise the latest developments on the Coronavirus Job Retention Scheme to emerge. Thursday 14 May 2020 The government has published guidance today on holiday during furlough. In…

Matthew Clayton MA LLM (Cantab), CIPP/E
Partner
Contact us