Testing the Reasonableness of Restrictive Covenants

by Julie Bann and Adrian Hoggarth

In Bartholomews Agri Food v Thornton, the High Court was asked to make an interim injunction against a breach of a non-compete covenant in a contract of employment.

Bartholomews is an agricultural merchant supplying a full range of products and services to the agricultural sector including the provision of agronomic advice to individual farmers, landowners and their managers. It operates in West and East Sussex, Kent, Hampshire, Wiltshire and Dorset.

Thornton is an agronomist who began working for Bartholomews, then known as in September 1997 as a trainee agronomist. The restrictive covenant relied upon was in the original employment contract from 1997 and stipulated that:
“Employees shall not, for a period of six months immediately following the termination of their employment be engaged on work, supplying goods or services of a similar nature which compete with the Company to the Company’s customers, with a trade competitor within the Company’s trading area, (which is West and East Sussex, Kent, Hampshire, Wiltshire and Dorset) or on their own account without prior approval from the Company. In this unlikely event, the employee’s full benefits will be paid during this period.”

Firstly, the High Court held that a covenant, which would be unenforceable when it was imposed would still be unenforceable irrespective of a change in nature of the employee’s duties. In this case, the Court held that it was manifestly inappropriate to impose this restriction on such a junior employee bearing in mind the covenant was agreed with Thornton when he was a trainee agronomist with no experience and no customer contacts and it constituted a restraint of trade and on this basis alone it was unenforceable.

The Court further held that even if that was not the case, the term was unreasonably wide in preventing Thornton from dealing with any customer of Bartholomews regardless of whether he had had any prior dealings with the customer. Given that the employee input to the company turnover amounted to just over 1% of the company’s overall turnover, it would be manifestly unfair to prevent him from working with customers representing the other 98% plus of the employer’s existing customer base.

Finally, the Court considered the unusual clause which effectively meant that Bartholomews would continue to pay Thornton his full salary for the duration of the covenant providing he did not breach it. The Court found that this did not affect the enforceability of this clause as it ‘would be contrary to public policy to allow an employer to ‘purchase’ a restraint of trade’.

ACTION
This case is a good reminder that:
– Restrictive covenants must be role-appropriate
– Restrictive covenants should be reviewed and updated when an employee is promoted or transferred to a new role
– Before you instigate any legal action against an employee for a breach of restrictive covenants do your maths. In this case, the % of work undertaken by Thornton was only really considered during the course of the injunction hearing. This was a costly exercise for the business and could have been avoided if this calculation had been considered beforehand.

If your restrictive covenant clauses have not been reviewed for some time, the enforceability of these terms may not have been assessed in light of case law.