The High Court has granted an injunction in the case of Prophet plc v Huggett [2014] EWHC 615 (Ch) in respect of a restrictive covenant that, if read literally, offered the employer no protection.  The judge used his powers of construction to infer additional wording into the restriction in order to protect the employer.

Background

Restrictive covenants are one of the most litigated areas of employment law in the civil courts and the tests for establishing the construction and enforceability of a restrictive covenant are well established.

First, the court must consider what the covenant means when properly construed.  The court has discretion to infer minimal amendments to the written wording, in order to give the clause the meaning that had been intended by the parties when the contract was signed.

Secondly, the court will consider whether the employer has a legitimate business interest to protect.  Thirdly, the court will consider whether the covenant is no wider than necessary to protect the legitimate business interest.  If the restriction goes further than is necessary, it is likely to be ruled a restraint of trade and will be unenforceable.

Finally, the court will have to decide as a matter of discretion whether to grant an injunction to restrain the individual and will take into account factors such as the potential damage or loss to the employer if the injunction were not granted, the hardship that would be suffered by the individual if it were and whether there may be a more appropriate remedy, such as damages.

Facts

Mr Huggett was employed as a sales manager by Prophet Plc (Prophet), a company that developed and sold computer software for use in the fresh produce industry.  Mr Huggett's contract of employment contained a number of restrictive covenants, including a one year non-compete restriction.

In December 2013, Mr Huggett resigned from his role at Prophet to take up a sales role at K3 Business Solutions Limited (K3), a competitor of Prophet.  Prophet asserted that Mr Huggett would be in breach of his non-compete restriction if he went to work for K3 and, following correspondence with solicitors acting for Mr Huggett, sought an injunction preventing Mr Huggett from taking up his role with K3 (or any other employer covered by the restriction) for the duration of the restriction.

Mr Huggett argued that the restriction did not prevent him from working for K3.  This was on the basis that there was a general caveat at the end of the non-compete restriction, which stated: "…this restriction shall only operate to prevent the Employee from being [employed] in any area or in connection with any products in, or on, which he/she was involved whilst employed hereunder."

On the face of it, this meant that the only companies Mr Huggett was restricted from working for were ones that were connected with the products he was involved with while employed by Prophet.  As the software that Prophet developed was not sold by any other company, the restriction - taken on its literal meaning - was worthless and did not restrict Mr Huggett from working for K3 or any other company.

High Court decision

In the High Court Judge Donaldson QC ruled that the restriction, when properly construed, prevented Mr Huggett from taking up employment with K3 for the period of the restriction and he granted the injunction sought by Prophet.

When considering the meaning of the restriction, the judge stated that the ordinary meaning of the final sentence (as set out above) rendered the restriction pointless and therefore something must have gone wrong in the drafting of the clause.  The judge therefore considered what the parties had intended the restriction to say at the time it was agreed and what a reasonable person would have understood the parties to have intended.

The judge considered that the restriction was intended to cover any company involved with products developed by Prophet "or similar thereto" and added this wording to the end of the restriction to achieve this effect.

The judge was satisfied that the amended restriction protected a legitimate interest of Prophet and that it was suitably narrow so as not to constitute a restraint of trade.  In considering whether to grant the injunction, the judge considered that there would not be significant hardship to Mr Huggett and that an injunction was the appropriate remedy in the circumstances.

Comment

This case highlights the point that courts have wide powers of interpretation when dealing with restrictive covenants and, where possible, will take a business common sense approach to construing them, rather than being constrained by the literal or strict meaning of the wording.

This case was particularly unusual in that the judge was prepared to add wording to the restriction in order to render it effective; courts often limit such amendments to deleting wording or amending grammar.  Prophet was probably helped in this case by the fact that the restriction was otherwise pointless and the judge took the view that there had been a clear drafting error when the clause had been agreed.

However, courts are not always so sympathetic to employers when considering restrictive covenants and asking a court to correct drafting errors in a restrictive covenant (or in any contractual drafting) will always be a risky and expensive undertaking.  The interpretation and enforceability of restrictive covenants will continue to be a contentious area and it is best to check at the outset that any covenants contained in an employment contract provide the required protection and are likely to be enforceable.