The High Court has ruled in Pat Systems v Neilly that the reasonableness of a restrictive covenant must be judged at the time it was entered into and not when the employer seeks to enforce it.
What does this mean?
If it was unreasonable to include a restrictive covenant in an employee’s contract of employment at the time when the contract was entered into, for example because the employee only held a junior position at that time and had few responsibilities, a subsequent change of circumstances, such as a promotion to a more senior role, will not turn the restrictive covenant into a valid one.
What should employers do?
When changing employees’ responsibilities, employers should review any restrictive covenants with legal advice as necessary. They should consider whether it might be appropriate to enter into covenants afresh or to impose new covenants. Employers should always take specific legal advice before seeking to enforce a restrictive covenant.