Poorly drafted non-compete restriction upheld by the High Court

14 May 2014

Post-termination restrictions (also known as restrictive covenants) are a useful tool for many employers who wish to protect their business against former employees who leave their employment and move on to a competing business. If drafted properly, post-termination restrictions can prevent a former employee from soliciting, dealing or interfering with their former employer’s clients, suppliers and key employees for a prescribed period of time after their employment ends. Breach of a post-termination restriction can lead to an employer seeking injunctive relief and damages against the former employee.

To be enforceable, an employer must show that it has a legitimate proprietary interest to protect (normally its confidential information and client base) and that restriction goes no further than is necessary to protect that proprietary interest, taking into account the interest of the parties and the public interest. A court will not re-write a restriction if, in its existing form, it is unreasonable. However, in the recent case of Prophet plc v Huggett, the High Court was prepared to add words to a poorly-drafted restriction to make it enforceable.
Prophet plc is involved in the development, selling and updating of computer software, simply called “Prophet”, aimed at businesses working in the fresh produce market. Mr Huggett was responsible for marketing and promoting the Prophet software product. His contract of employment included a post-termination restriction preventing him from working in competition with Prophet plc for 12 months after the termination of his employment. The restriction was limited by the following sentence:

“Provided that this restriction shall only operate to prevent the Employee from being so engaged, employed, concerned or interested in any area and in connection with any products in, or on, which he/she was involved whilst employed hereunder.”

By its literal interpretation, Mr Huggett was only prevented from working in competition with Prophet plc if he were employed by another company selling the Prophet software product. Accordingly, Mr Huggett argued that the restriction was not enforceable against him when he left his employment with Prophet plc and joined a competing company, K3, which sold a different, competing software product.

The High Court was prepared to add the words “or similar thereto” into the restriction (found in the non-solicitation and non-dealing clauses) on the basis that it was a “minimum change necessary to produce a commercially sensible result”, and was probably what the parties had intended.

It is unusual that a court will add words to a post-termination restriction to make it enforceable, but this case reminds us that the court does have the power to do so, if it wishes. More importantly, this case emphasises the importance of drafting post-termination restrictions carefully and properly. A badly drafted restriction is not worth the paper it is written on!

By Michelle Tudor

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