It is not uncommon for employment contracts to contain restrictive covenants, intended to protect the employer's business in the event that an employee leaves. However, if these are drafted in such a way that their enforcement would prevent the employee from earning a living, the courts have been apt to strike them out as being unenforceable. A restrictive covenant will only be valid if the employer can show that it does no more than protect the legitimate interests of the business and is reasonable with regard to time and the area it covers. It cannot restrict a former employee from using his or her general skills but can legitimately protect trade secrets.
In some recent cases, the courts have begun to take a more flexible approach. Rather than dismissing as unenforceable a restrictive covenant that is too widely drafted they have sought to interpret it in a way that achieves a balance so that the employer's position is protected whilst the employee is not deprived of his or her livelihood.
In a recent case in the Scottish Court of Session (Christie Owen and Davies Plc v Walton), the former employer had obtained an injunction to enforce a restrictive covenant in Mr Walton's contract. Mr Walton had worked for Christie Owen and Davies as a chartered surveyor, specialising in the care sector. Mr Walton challenged the ruling, claiming that the terms of the covenant were too restrictive, in particular that the definition of a 'prohibited business' that it contained effectively prevented him from working as a chartered surveyor.
The background to the case was that Mr Walton had for some months been looking for another job. In December 2007 he accepted employment with another company which was aiming to establish an agency working in the healthcare sector in Scotland. Prior to this, in November 2007, he had sent emails to his girlfriend's computer which contained contact details relating to his work with Christie Owen and Davies in their Edinburgh office. The company's IT security system detected the transfer of the large data files and the senior managers were notified. The company claimed that Mr Walton was gathering confidential information to take to his new employer to assist their expansion into the care sector in Scotland. Mr Walton claimed that he had transferred the files so that he could work at his girlfriend's home, where he was living. On 7 December he was dismissed on the ground of gross misconduct.
The definition of a prohibited business contained in the restrictive covenant referred to any business carried on by Christie Owen and Davies during the relevant period with which the employee 'shall have been directly or materially concerned in the course of his employment'. Mr Walton argued that he had been directly involved in far more activities than just the care sector and that the restriction was unreasonable, being wider than was necessary to protect the employer's trade connections in that sector alone.
Mr Walton lost his appeal. In the Court's view, the restriction only limited him from working in an organisation in the business sector with which he had been 'directly and materially' involved and so recognised that an employee may have carried out various activities in the course of his employment but unless these formed a significant part of his work, those business activities would not be prohibited. The restrictive covenant as regards his work in the care sector was therefore effective.
We can advise you on drafting restrictive covenants that will both protect your legitimate business interests and also be viewed as a reasonable restriction with regard to the individual nature of your business. Contact Dean Parnell for advice.
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