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Drafting restrictive covenants? Approach with care…

Restrictive covenants – express terms in the contract of employment which restrict employees’ activities after they leave employment – can be vital in protecting your business. But careful drafting is essential.

To be enforceable a covenant must be designed to protect a legitimate business interest (such as goodwill, trade secrets or confidential information) and must be no wider than reasonably necessary to protect that interest (so will usually be limited by reference to restricted activities, duration and geographical extent).

However, as demonstrated in Prophet plc v Huggett, getting the correct basic wording is also critical. Mr Huggett was a sales manager for Prophet, which develops and sells computer software to the fresh produce industry. When he left to work for a competitor, Prophet sought to enforce a covenant which prevented him working ‘in connection with any products with which he was involved whilst employed by Prophet’. Read literally, this only prevented him from working with Prophet’s own software products. It was, therefore, ‘toothless’, as these products were in fact unique to Prophet. Mr Huggett was therefore free to work for a rival, selling similar competing software to the fresh produce industry.

The Court concluded that the fault lay with the draftsman of the covenant and had little sympathy for Prophet, commenting that it had ‘made its bed and must now lie on it’. The simple addition of words such as ‘or similar products’ may well have saved this covenant.

Restrictive covenants should be reviewed periodically to ensure they remain relevant and enforceable. If you have any queries on drafting or reviewing covenants, your usual Brodies’ contact will be able to assist.

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