Court of Appeal confirms severing “fantastical” elements of the clause to leave the good stuff is permissible
Restrictive covenants… Post-termination restraints of trade… Whatever you call them, this is an area of law which is subject to much uncertainty. The facts of every case will be of importance. As will the quality of drafting.
As a brief recap, a restrictive covenant is a mechanism by which an employer can impose contractual restrictions on what an employee can do after the employment relationship has ended. The usual suspects include restrictions against working for competitors, obligations not to poach/solicit or deal with the clients or customers of the former employer and, sometimes, a ban on enticing key employees to leave the business. These restrictions will typically be for a limited duration of time for anything between three to twelve months.
When advising an employee who has recently left a job to discover that they signed some post termination restrictions, the stock answer is “they can’t stop me from earning a living, that’s not fair”. That is a fair point because post-termination restrictions are indeed a restraint on trade, sometimes preventing the employee from exercising their skills and experience to work in a chosen profession. A court will enforce such clause if (1) the employer can demonstrate a legitimate interest which they are seeking to protect; and (2) the clause goes no further than is necessary to protect that interest.
It is in respect of the latter of these two points that lawyers and courts will often emphasise the importance of tight drafting. The clause should be worded as narrowly as possible, to avoid the risk of it being excessively wide and thus rendered unenforceable.
A recent case provided some comfort to employers that an excessively wide clause will not always be unenforceable. In Boydell v NZP Limited, Dr Boydell worked for NZP, a niche operator in the pharmaceutical industry. His employment contract included a restrictive covenant which sought to restrict him from working in any business which would compete with any business activity of NZP, or any of their Group Companies, for 12 months after his employment ended.
There were elements of the wording of the clause which the judge severed (put a line through). These were in particular around the reference to Group Companies, where the court found the effect of the clause (as written) was to “prohibit Dr Boydell from being involved in any activity for the benefit of any third party that carries out any business that would compete with the business activity carried out by NZP or any other company in the group.”
In essence, the court decided that a clause can be valid even where it contains elements which are so “extravagant”, “fantastical”, or “unlikely or improbable” that they must not have been contemplated by the parties (when they entered into the contract). It is these “fantastical” elements which can, legitimately, be severed/deleted by the court.
It remains that drafting of restrictive covenants is a specialised area where care is essential. It also remains good law that a court will not completely re-write a badly drafted restriction to state what the court thinks the parties intended to say. However this decision does give employers some comfort in that drafting which has the unintentional consequence of making the restriction so wide as to be fanciful, the court can delete the fanciful wording so long as the remaining wording (after deletion) accurately reflects the intention of the parties and the deletion does not significantly alter the overall effect of the covenant. If you require advice on any issues related to restrictive covenants, please contact a member of the Blackadders Employment Team in Dundee, Edinburgh, Glasgow or Aberdeen.