It is established in case law that the courts will find a restrictive covenant to be void unless it is in place to protect a legitimate business interest and it is reasonable in scope. If the restriction goes further than is reasonable, the courts will not be prepared to enforce it.
In the recent case of Safetynet Security Ltd v Coppage, the High Court has ruled that a restriction of six months which prevented a director from soliciting anyone who was a customer or client during his employment was reasonable in the circumstances.
The restriction in question read as follows:
“It is a condition of your employment, that for a period of six months immediately following termination of your employment for any reason whatsoever, you will not, whether directly or indirectly as principal, agent, employee, director, partner or otherwise howsoever approach any individual or organisation who has during your period of employment been a customer of ours, if the purpose of such an approach is to solicit business which could have been undertaken by us”.
Mr Coppage had been a Director at Safetynet and was very much sold as ‘the face’ of the company, having significant dealings with clients. He resigned, and shortly after he left, he set up a new company. Five of Safetynet’s clients moved over to the new company, and as a result, Safetynet alleged that Mr Coppage had breached his covenant.
The Court highlighted that the key test in regard to restrictive covenants is always reasonableness. The judgment also offered some guiding principles to follow in evaluating the reasonableness of a non-solicitation restrictive covenant. These were as follows:
- The Court should first consider the construction of a restrictive covenant for its meaning.
- The Court should then consider the aim of the restriction and whether this is to protect the legitimate business interests of those seeking to enforce the restrictive covenant.
- Finally, the Court must construe the clause in context and have regard to the facts at the date at which the contract containing the restrictive covenants was made.
The Court found in this case that the non-solicitation clause was for a reasonable period of six months following termination of Mr Coppage’s employment and was clear on those customers with whom Mr Coppage could not deal. This was very clearly linked by the Court to the fact that Mr Coppage was a key figure in Safetynet’s company structure. It was therefore found that Mr Coppage was in breach of his restrictive covenant.
The Court also commented that the approach to customers must involve some direct or targeted behaviour in order to fall foul of a non-solicitation restriction like the one in this case. A general advertisement about availability for business at a new company or a specific announcement about a move to another employer would fall not be in breach on its own.
If you suspect an ex-employee has breached restrictive covenants, or if you need to review or update the covenants you have in place, please call us on 01243 836840 for a no obligation chat or email us at [email protected].