UK: Enforceability Of Post-Termination Restrictive Covenants

Last Updated: 9 November 2016
Article by William McParland
Most Read Contributor in UK, November 2017

Post-termination restrictive covenants preventing agronomists (or crop scientists) from soliciting or dealing with relevant customers is the subject of the recent case of Pickwell and Nicholls v Pro Cam Limited.

The case arises out of a dispute between the two Claimants, Mr Pickwell and Ms Nicholls, and their employer; the agricultural supplies company, Pro Cam Limited, as to the enforceability of restrictive covenants set out in their contracts of employment as trainee agronomists.    

The High Court decided that the restrictive covenants were enforceable against the two trainee agronomists and the case illustrates how employers should draft effective covenants.

As trainee agronomists working for Pro Cam the Claimants were expected to acquire the knowledge and develop the skills of an agronomist over a period of training and practical work experience, so that they could take over from long serving colleagues who were nearing retirement. During their training and upon qualification, they were introduced to valuable customers of the company and exposed to confidential and commercially sensitive information. Their contracts contained non-dealing and non-solicitation post-termination restrictions, lasting for six months.

A rival company made contact with both Claimants in 2015. They both decided to resign from Pro Cam, giving six months' notice. 

Both Claimants were subject to the same covenants, which provided as follows –

"You will not from the date of termination of your employment either on your own account (whether directly or indirectly) or as a representative employee, partner, director, shareholder or agent of any other person, firm, company or organisation - ...

...for a period of 6 months have any dealings in the sale or supply of any relevant goods or services to any relevant customer...[the non-dealing covenant].

...for a period of 6 months canvass or solicit order for any relevant goods or services from any relevant customer ...[the 'non-solicitation' covenant].

They sought a declaration that they could solicit and deal with Pro Cam's clients on the basis that:

  1. there was no legitimate interest to protect; and
  2. the covenants were too wide.

As a general rule, the reasonableness of a restrictive covenant must be judged at the time it was entered into; and the more junior the employee, the less likely the courts are to find onerous restrictions to be reasonable and therefore enforceable.

The Court found that the reason for imposing the restrictive covenants, when the Contracts were signed, was because Pro Cam and the Claimants had in their contemplation that the Claimants would in due course be dealing with customers as qualified agronomists. Had the Claimants not accepted the terms of the formal contract, they would not have had the commercial opportunity to take over from senior colleagues.    

The Court considered whether Pro Cam had a legitimate interest that required protection and found that Pro Cam's goodwill and customer connection were protectable interests.  

The Court rejected the Claimants' argument that the restrictive covenants entered into when they were only trainees were self-evidently wider than necessary to protect the legitimate business interests of Pro Cam. The Court found that, at the time of signing the relevant contract, both parties contemplated the trainee period as an initial phase which would enable Claimants to become fully fledged agronomists with a long-term future in the employment of Pro Cam and they decided that making provision for the future (by imposing the restrictive covenants) was both rational and sensible.

This case illustrates that what is in contemplation of the parties at the time the contract is entered into is highly relevant and that valuable consideration can be the access to commercial opportunities in the future. It is also reminds us that non-dealing and non-solicitation clauses continue to be more likely to be held to be enforceable than non-compete clauses.

In contrast, another recent High Court Judgment, (Bartholomews Agri Foods Limted v Thornton) illustrates how not to draft covenants: on similar facts, the restrictive covenant was held to be unenforceable. In Bartholomews, the Claimant was an agronomist who had worked for the company for 18 years, starting as a trainee.  As a trainee, he signed a contract of employment that contained a restrictive covenant preventing him from competing with any of his employer's customers, within the company's trading area, even though he only dealt with a fraction of those customers and did not operate within the whole of the company's trading area.  

The Claimant argued that the covenant was in restraint of trade, unreasonable and unenforceable.     

The Court agreed, finding that the covenant had been imposed on the employee 18 years previously, when he was a trainee with no experience and no customer contacts, and its terms were manifestly inappropriate for such a junior employee. 

Moreover, it was poorly drafted and it was far wider than was reasonably necessary for the protection of the company's business interests. It applied to all the company's customers as well as those of its associated companies, regardless of whether the employee had had any relationship with them.  

In summary, remember that restrictive covenants need to be carefully drafted and tailored to the particular business needs and the employee's role, to stand any chance of being enforceable but that a contract that contains specific restrictions in anticipation of the employee holding a more important position in the future, can be enforceable.

Enforceability Of Post-Termination Restrictive Covenants

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