Restrictive Covenants and Employers’ Legitimate Business Interests

When it comes to considering the enforceability or otherwise of restrictive covenants in employment contracts, judges are required to focus on the need of employers to protect their legitimate business interests. The Court of Appeal emphasised that point in a guideline case.

A software company sought a pre-trial injunction against a former employee, alleging that he had breached a non-compete covenant in his employment contract. The covenant forbade him from working for a competitor for 12 months following his departure. A judge, however, rejected the company’s application on the basis that it had failed to show that the covenant was more likely than not to be enforceable.

In ruling on the company’s challenge to that outcome, the Court found that the judge erred in his preliminary assessment of the covenant’s enforceability. He took no account of the company’s position that the covenant went no further than was reasonably necessary to protect its legitimate business interests.

The principal factor that the judge took into account against the grant of an injunction was that, if the clause were enforced, the employee, who had family and financial commitments, would not be able to work in his chosen field for 12 months. That factor was not relevant to the preliminary question of whether the covenant was likely to be enforceable and there was no authority for the judge’s approach.

In dismissing the appeal, however, the Court noted that the employee had been in his new job for over seven months. The covenant had only about four more months to run and it was likely that most, if not all, of the damage that the company feared might arise from his employment by an alleged competitor had already been done.

The Court refrained from reaching its own conclusions as to the enforceability of the covenant and ruled that the most sensible course was to maintain the status quo pending a speedy trial of the company’s substantive claim.