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Restrictive Covenant gave employer no protection

Restrictive Covenant gave employer no protection

Employment Law & HR
BG Purple

Restrictive covenants continue to cause headaches for employers seeking to enforce them.  Courts require to be convinced that the covenants go no further than necessary to protect the employer’s interests, and most cases revolve around this issue.

The recent case of Prophet plc v Huggett, however, provides an interesting twist where the restrictive covenant was found to be enforceable, but of no practical use to the employer as drafted. 

In that case, the employee was a sales manager for Prophet selling computer software.  He signed various restrictive covenants setting out restrictions on what he could do once he had left Prophet. One of those restrictions provided that for a period of 12 months post termination, he would not work ‘in any area and in connection with any products in which he was involved whilst employed’. 

Mr Huggett subsequently was headhunted by a rival firm working in the same area as Prophet.  Prophet promptly sought an injunction preventing him from taking up employment. 

The restrictive covenant itself had been professionally drafted and was on the face of it enforceable.  However, it contained a flaw. The only products that Mr Huggett was involved with during his employment were Prophet’s own software products.  The new employer had similar software, but on a literal interpretation of the covenant, the restriction only applied to working with the specific products that Prophet produced.

At first instance, the High Court found that the covenant as drafted, while it made literal sense, offered no protection at all to Prophet and they therefore read into the clause words to the effect that it covered not just Prophet’s software but also other similar software.  In the High Court’s view, any reasonable person would have realised that this is what the clause was supposed to mean. 

Unfortunately for Prophet, the Court of Appeal disagreed.  They agreed with the High Court that the clause had clearly been erroneously drafted and offered no protection at all to Prophet.  However, they found that, there was no scope to rewrite an unambiguous clause, absurd or not. 

The case serves as a useful reminder to all, lawyers included, that extra care must be taken when drafting restrictive covenants.  Not only should the covenant be no wider than is necessary to protect the employer, but it should also be clear in its terms.  One suspects that the company in this case will not be using that law firm again!

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