12-Month Non-Compete Clause Upheld by Court of Appeal
In the case of Boydell v NSP Ltd and others, the Court of Appeal has upheld a 12-month post-termination restriction, which prevents a former employee from working for a competitor company within his specialised field.
What Was the Background to the Claim?
NZP's business is in a niche area of the pharmaceutical industry involving the development, production and sale of bile acid derivatives to pharmaceutical companies. Dr Boydell was NZP's former Head of Commercial - Speciality Products. He resigned in October 2022 and his employment terminated in January 2023. Dr Boydell had secured a new position to head up the 'bile acid business' at another pharmaceutical group.
Dr Boydell's contract of employment with NZP contained a number of post-termination restrictions. Amongst these was a 12-month non-compete clause. As originally drafted, this clause prevented Dr Boydell from being involved in any activity for the benefit of any competitor of NZP or any of the companies within the same group.
NZP and its holding company brought a claim seeking injunctive relief to enforce various of the post-termination restrictions, including the non-compete clause.
What Was the High Court's Decision?
The High Court upheld an amended version of the non-compete clause. It 'severed' wording relating to the restrictions against working for competitors of NZP's group companies. The effect of this meant that whilst the non-compete restriction remained in place, it operated only in relation to NZP's specialist activities, and not the more general activities carried out by other companies within the same group.
Dr Boydell appealed to the Court of Appeal. He argued, amongst other grounds of appeal, that the restriction was still too wide.
What Did the Court of Appeal Decide?
The Court of Appeal upheld the High Court's decision. The statutory test for granting an injunction is whether it is just and convenient. Where it is not possible to hold a full trial until after the period of the covenant has expired (or substantially expired), it is acceptable for the judge to form a preliminary view of the claimant's prospects of success when considering whether to grant an interim injunction. The judge was entitled to sever words from the clause and grant an interim injunction on a more limited basis pending the full trial, which is listed for June 2023.
What Can Employers Learn from This Decision?
Post-termination restrictions may be reasonable and enforceable if they give adequate (and no more than adequate) protection to the employer's legitimate interests. They are powerful tools, but can often be the cause of dispute, particularly if they are not carefully drafted and tailored to the circumstances. The Court of Appeal took into account the specialist nature of NZP's work. Had the employer been a large employer covering a variety of business activities, the covenant might not have been enforceable.
