This question was recently considered by the English High Court and while many of us are a little disappointed that the issue has not yet finally been determined, the Court has thankfully provided a little more guidance to point employers in the right direction.
In this recent case, an employee who was originally employed as an Account Manager with a reputable IT software company was contractually required to comply with a twelve month non-compete restrictive covenant following termination of his employment. However, while restrictive covenants may not themselves appear an unreasonable concept and instead, a necessity to preserve business continuity, this particular clause prevented the employee from competing in a similar industry throughout the whole of Europe and the USA for one year; in other words, a relatively large global arena for a lengthy defined period.
The issue of whether this covenant (with such a wide global ambit) was reasonable only came into question following the employee's termination of employment almost twelve years later. However, the interesting point to note here is that the employee (at the time of termination) had progressed the career ladder and was now a Director, responsible for global account management; a role which carried a far greater level of responsibility and provided a much more in-depth understanding and knowledge of the business than when he first commenced employment some years earlier.
Immediately following his resignation from the business, the Company applied for an injunction seeking to enforce the noncompete restrictive covenant on the strong belief that the now ex-employee would commence employment with a perceived competitor (which in fact, he did!).
In the genuine belief that the injunction would be granted and the ex-employee prevented from working throughout Europe and the USA for the duration of one year, the Company was, needless to say, rather dismayed to learn that the clause was not enforceable. The Court held that the reasonableness of any restrictive covenant will be determined by the facts at the time the parties entered into the contract of employment; consequently, the noncompete clause preventing the ex-employee from working throughout Europe or the USA for twelve months following termination could not be justified based on his status as an Account Manager when he first commenced employment. It was held that a restrictive covenant which is essentially void for being 'unreasonable' at the time of entering into the contract could not subsequently become reasonable by virtue of a change in circumstances.
The judgment in this case should be a warning to employers; employees who initially start in relatively junior roles should not be confined to such wide and stringent restrictive covenants as to impose such may render them void and unenforceable.
Further, as an employee progresses within an organisation, any mindful employer would be wise to re-visit the suitability of such covenants to ensure that they are more appropriate to the level of role now being undertaken; if not, then again they are likely to be unenforceable.
While it is important to point out that this case has become a leading authority in the English legal system, there is nothing to stop a similar position from being adopted by the Tribunals in the Channel Islands, which tend to accept that such decisions have persuasive authority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
