{"id":2195,"date":"2019-08-14T14:45:48","date_gmt":"2019-08-14T14:45:48","guid":{"rendered":"http:\/\/ramsaypaterson.co.uk\/legal-comment\/?p=2195"},"modified":"2019-08-14T14:45:48","modified_gmt":"2019-08-14T14:45:48","slug":"a-restrictive-covenant-refresher-and-the-relevance-for-values-driven-employers","status":"publish","type":"post","link":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/a-restrictive-covenant-refresher-and-the-relevance-for-values-driven-employers\/","title":{"rendered":"A restrictive covenant refresher (and the relevance for values-driven employers)"},"content":{"rendered":"

In July, employment lawyers across the country got a little bit excited, as for the first time in 100 years (since 1920!) our highest court (the Supreme Court) considered a case<\/a> about restrictive covenants in employment contracts.<\/p>\n

We felt this was particularly blog-worthy, partly for that reason, but also because it\u2019s a useful reminder about the key principles of restrictive covenants.<\/p>\n

We know that including such restrictions in employment contracts is something which purpose and values-driven employers sometimes shy away from, but should they?<\/p>\n

What\u2019s the legal development?<\/strong><\/span><\/p>\n

Last month, the Supreme Court overturned the previous Court of Appeal decision that a restrictive covenant in which a senior employee agreed not to \u2018directly or indirectly engage or be concerned or interested in\u2019<\/em> any competing business for six months after the termination of her employment was unenforceable.<\/p>\n

A key focus of this case was the meaning of the words \u2018interested in\u2019<\/em> and whether this included having any shareholding in another company.\u00a0 The Supreme Court agreed with earlier decisions that the words \u2018interested in\u2019<\/em> were unreasonably wide, as they prevented even a minor shareholding in a competing business, making it too restrictive. Importantly though the Supreme Court held that the words \u2018or interested in\u2019<\/em> could be cut (\u2018severed\u2019) from the remaining parts of the restriction so that the wording overall became reasonable and enforceable.\u00a0 What was left was that the former employee could not \u2018directly or indirectly engage or be concerned\u2019<\/em> with any competing business for 6 months.<\/p>\n

The Court\u2019s decision has effectively relaxed the approach to severing offending wording from covenants like this. The position is now broadly as follows:\u00a0 specific words which make the restriction unreasonable can be deleted if 1) that can be done without needing to add extra words and 2) the removal of the unenforceable wording would not mean any major change in the overall effect of the covenants.<\/p>\n

This means that there is now a greater chance of employers being able to enforce restrictive covenants against former employees.<\/p>\n

What does this mean for values-driven employers?<\/strong><\/span><\/p>\n

We\u2019ve experienced many values-driven employers being uncomfortable with including restrictive covenants in their employment contracts, perhaps feeling that such restrictions do not sit comfortably with an ethical approach to business.<\/p>\n

We\u2019d challenge that, at least discouraging an assumption that all covenants are \u2018unethical\u2019. The starting point in law is always that a restrictive covenant will only be enforceable if 1) it protects a legitimate business interest and 2) is no wider than reasonably necessary to protect that interest.\u00a0 If your organisation is genuinely purpose and values-driven \u2013 an organisation which exists to provide a benefit to people or the planet, including those who work there \u2013 then surely it\u2019s legitimate to take certain steps to protect that organisation and to help to secure its sustainability for the future? And why would employees object?<\/p>\n

Unreasonably onerous restrictive covenants that may be contrary to ethical business practices, would be unenforceable in any event.<\/p>\n

This recent decision helps employers and employees focus on the overall meaning of the covenant and whether it is reasonable, rather than covenants failing because the drafting hasn\u2019t been technically tight enough. It will also have an impact on negotiations with former employees to try to insist they comply with the obligations they agreed to.<\/p>\n

Some specific practical pointers from this case for employers:<\/p>\n

– review whether any existing covenants might prevent a departing employee from holding even a small shareholding in a competitor (e.g. up to 5%) and ensure such shareholdings are excluded from the restriction;<\/p>\n

– remember that the reasonableness of the covenants is assessed in the context of when the clause is issued to the employee \u2013 not in the context of the employee\u2019s last role before they left. Make sure that they are kept updated if roles have changed;<\/p>\n

– adequate consideration needs to be given for the covenant to be enforceable. This could be a one off payment, a pay rise or introduction of a new benefit, provided that it is genuinely linked to agreeing to the new covenant and would not have been paid anyway<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

In July, employment lawyers across the country got a little bit excited, as for the first time in 100 years (since 1920!) our highest court (the Supreme Court) considered a case about restrictive covenants in employment contracts. We felt this was particularly blog-worthy, partly for that reason, but also because it\u2019s a useful reminder about … Continue reading A restrictive covenant refresher (and the relevance for values-driven employers)<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/posts\/2195"}],"collection":[{"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/comments?post=2195"}],"version-history":[{"count":5,"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/posts\/2195\/revisions"}],"predecessor-version":[{"id":2202,"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/posts\/2195\/revisions\/2202"}],"wp:attachment":[{"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/media?parent=2195"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/categories?post=2195"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ramsaypaterson.co.uk\/legal-comment\/wp-json\/wp\/v2\/tags?post=2195"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}