Prophet plc v Huggett [2014] EWCA Civ 1013

Why care?

A contractual term restricting an employee's activities after termination is void for being in restraint of trade and contrary to public policy, unless the employer can show that it has a legitimate proprietary interest that it is appropriate to protect and the protection sought is no more than is reasonable having regard to the interests of the parties and the public interest. A non-compete covenant is harder to enforce usually than a non-solicitation or non-dealing covenant, since its effect on the individual is greater.

In this case, the covenant contained a drafting error which meant that the employee was prevented only from selling his former employer's unique product whilst working for a competitor – something that would never happen. How should the courts interpret this wording?  Was it a mistake capable of correction, or were the parties bound by the contract, however nonsensical? 

The case

Prophet sells a suite of integrated software applications (also called Prophet) covering much of the process functions of businesses supplying fresh produce. Each license is for an initial period of 12 months and thereafter renewed annually.

Mr Huggett was employed by Prophet as a sales manager with a three month notice period. At Clause 19 of his contract, a 12 month non-compete post-termination restriction prevented him from working or being engaged with any competing business of "any business of the Company in which the Employee shall have worked whilst employed hereunder (in that they provide computer software systems of whatever kind to an company involved in the fresh produce industry) within the geographical area (namely the United Kingdom) … Provided that this restriction shall only operate to prevent the Employee from being so engaged, employed, concerned or interested in any area and in connection with any products in, or on, which he/she was involved whilst employed hereunder."

In December 2013 Mr Huggett accepted a job offer from K3, a competitor of Prophet selling business solutions to its customers across a variety of sectors. Its product for the fresh produce sector was called Fresh Dynamics, a modified version of a Microsoft product.

The High Court granted an injunction preventing Mr Huggett from working for K3 or any other software supplier in the fresh produce sector until his covenant expired in January 2015.  Although the covenant as drafted gave Prophet no protection, the High Court concluded that it could make the minimum change necessary to produce a sensible result was to add "or similar thereto" to the end of Clause 19 (see above). Prophet appealed and the Court of Appeal overturned the High Court decision. The covenant, if read literally, offered the employer no protection at all as it referred only to the products with which the employee had dealt during his employment, which were products sold only by his former employer.  The employee was therefore free to sell similar products to the same clients as soon as he began work elsewhere. There was no room for another interpretation, and the Court of Appeal disagreed with the High Court's view that the clause was ambiguous. In the Court of Appeal's view, the employer had simply not thought through the extent to which its chosen words would in fact provide adequate protection. The employer had made its bed and now had to lie in it.

What to take away

Read your covenants to make sure that your business and products are protected – particularly if your product or services, as in this case, is unique - but the covenant goes no further than is necessary. Whilst it is still possible for a court to remove ("blue pencil") words to make a restrictive covenant enforceable, the Court of Appeal has made clear there is no ""wriggle room" on interpretation or the addition of words. An employer cannot rely on a court to rewrite a poorly drafted covenant and remedy its bad bargain.

Also, consider including a garden leave clause in your contracts (entitling the employer to give the employee no work, or alternative duties during the notice period). It appears that there was no garden leave clause here and without one (since in the circumstances Mr Huggett was unlikely to agree). Prophet could not keep him out of the market that way, and was forced to either terminate and rely on the restrictions (as it chose to do) or to allow him to continue to work for them (remaining in contact with customers and learning more confidential information) for the remainder of his notice period.