Poorly drafted non-compete covenant held unenforceable

Background

In Huws Gray Ltd v Gentleman, the High Court considered the enforceability of a six-month post-termination non-compete covenant. The claimant employer, a national builders' merchant, employed the defendant as an area sales manager responsible for maintaining relationships with more than 100 high-value customer accounts across three branches. After resigning to join a competitor opening a new branch nearby, the employee was placed on garden leave.

His contract prevented him, for six months after termination, from working for or otherwise being involved with a competing business within 20 miles of the branches for which he had been responsible. The employer sought an injunction to enforce the covenant, arguing that it was necessary to protect its customer relationships and confidential information.

Decision

The court held that the covenant was an unreasonable restraint of trade and was therefore unenforceable. Although the employer had legitimate business interests in protecting its customer relationships, the restriction went further than was reasonably necessary.

The covenant was drafted so broadly that it could have prevented the employee from working for the competitor in almost any role, including positions unrelated to sales. A carve-out intended to narrow the restriction was found to be ineffective in practice. Although it purported to allow the employee to undertake work unrelated to the employer's confidential information or his previous duties, the court found those conditions were so broadly defined that there was, in practice, almost no role to which the exception could apply.

In addition, the contract contained non-solicitation and non-dealing covenants, but they referred to "Restricted Customers" and "Restricted Potential Customers" without ever defining who those people were. As a result, those covenants were incapable of operating and were unenforceable. The court considered that significant because a properly drafted non-solicitation or non-dealing covenant would have provided more targeted protection, thereby being more likely to be found to be reasonable.

The court also noted that the six-month restriction applied from the first day of employment, even though the employee was subject to only one week's notice during probation. The employer had not satisfactorily answered the point that the employee could have had insufficient time during probation to build the customer relations said to justify the restraint. This was a further indication that the covenant was wider than reasonably necessary.

The employer's separate claims relating to confidential information and LinkedIn contacts also failed. The court held that the employee's personal LinkedIn account and connections did not belong to the employer, and there was no evidence that confidential pricing information had been misused.

Learning points for employers

The decision is a reminder of the high bar employers will need to meet in order to enforce a broad non-compete clause. Employers should regularly review restrictive covenants to ensure they are tailored to the employee's role, supported by clear and effective drafting, and no wider than reasonably necessary to protect legitimate business interests.

The decision also illustrates how drafting defects can undermine otherwise legitimate restrictive covenants. It serves as a reminder to check that related covenants, such as non-solicitation and non-dealing provisions, are complete and internally consistent, as drafting errors may affect the enforceability of the wider contractual protection.

For more information or advice, please get in touch with Elizabeth McTeigue in our Employment team.