‘Too Wide’ Employment Covenants Not Worth the Candle, High Court Rules
Restrictive covenants in employment contracts are an essential means of protecting legitimate business interests. However, as a High Court decision showed, they need careful, professional drafting and examples that are too heavy-handed may not be worth the paper they are written on.
The case concerned two employees of a company that provided foreign exchange services to corporate clients and wealthy individuals. Following their departure, the company sought interim injunctions against them with a view to preventing them from taking up positions with a competitor.
The company relied on detailed post-termination restrictions in both men’s contracts, including a non-competition covenant which, amongst other things, forbade them from being employed, engaged or interested in any capacity in any competing business for six months after their departure.
In ruling on the company’s application, the Court found that it had legitimate interests to protect, including the security of its confidential information and client connections. However, in refusing to grant the orders sought, it found that the restrictions on the men’s post-termination conduct were so unreasonably wide in their effect as to render the covenant unenforceable.
The territorial reach of the restrictions was, on the face of it, global. The confidential information to which the men had access had a relatively short shelf-life and their relationships with clients were not so entrenched that they would be likely to follow them to a new employer. The six-month duration of the covenant, including one month on garden leave, was in the circumstances also unreasonable.
The Court noted that a far more narrowly tailored non-competition covenant would have been sufficient to protect the company’s business interests, whilst respecting the men’s liberty to make a living. As it was, however, the company’s arguments were unlikely to prevail at trial and the balance of convenience fell heavily in favour of the employees.