The question of whether or not restrictive covenants will be enforceable by the courts is always a difficult one to answer. The starting point is that they are void for being in restraint of trade and contrary to public policy, unless the employer can show that it has a legitimate interest to protect and the protection sought is no more than is reasonable. October has seen the courts grapple with a couple of interesting cases in this area.
In the first case, FW Farnsworth Limited v Lacy (2012), the High Court had to address the question of whether the employee would be bound by restrictions contained in an unsigned version of a contract of employment.
In this case, Mr Lacy signed and returned a contract of employment sometime after he joined the company. That contract contained restrictive covenants. A few years later, in 2009, Mr Lacy was promoted, and sent a new contract which contained more onerous restrictive covenants, and which also allowed Mr Lacy to opt to receive certain benefits. Mr Lacy read the new contract and applied for two of the benefits now available to him (private medical insurance and a defined benefits pension scheme). He did not sign and return the contract, but neither did he raise any concerns about its terms.
When Mr Lacy subsequently left FW Farnsworth Limited’s employment and sought new employment in breach of the restrictive covenants contained in the 2009 contract, he argued that FW Farnsworth could not rely on the restrictive covenants in the 2009 contract as he had never signed it. The High Court did not agree. They held that Mr Lacy had impliedly accepted the terms of the 2009 contract, and that was evident from his application for private medical insurance and to join the defined benefits pension scheme. As such he was bound by the restrictive covenants in the 2009 contract.
In the second case, PAT Systems v Neilly (2012), the question was whether a restrictive covenant which was unenforceable when it was entered into became enforceable when the employee was promoted. Mr Neilly was employed as an account manager in 2000 and entered into a contract of employment containing restrictive covenants which were stated to prevent him working for a competitor for a period of 12 months following the end of his employment with PAT Systems. In 2005, Mr Neilly was promoted and signed a letter agreeing that, other than his pay and responsibilities, all other terms of his employment remained as before. In April 2012 Mr Neilly was dismissed when he said he was going to work for a competitor. PAT Systems then sought an injunction to enforce the restrictive covenants.
The High Court held that the restrictive covenants were unenforceable when they were entered into in 2000. Whilst PAT Systems acknowledged that the restrictions were unreasonable at that time, they argued that the reasonableness or otherwise of the restrictions should be judged not as at 2000, but when Mr Neilly signed the letter in 2005 acknowledging that the terms of his employment remained unchanged. The Court did not agree. They held that it was wrong for a restrictive covenant, which was void when entered into, to become revived by future conduct unless that was the clear unequivocal intention of the parties. That was not the position here.
These cases illustrate some of the difficulties which both employers and employees can have when faced with the question of the enforceability of restrictive covenants. This is one of the most complex areas of law, and to an extent is somewhat subjective as each case is, quite rightly, decided on its own particular facts.
We have considerable experience in drafting and enforcing restrictive covenants, so taking advice from us on the scope and enforceability of covenants before you need to rely on them is time well spent. Please contact any member of the Pure Employment Law team on 01243 836840 or [email protected].