Creating effective restrictive covenants is a difficult balancing exercise between drafting restrictions wide enough to adequately protect the employer, but not so wide that they will be deemed unreasonably restrictive on the employee and thus unenforceable. In the recent case of Safetynet Security Ltd v Coppage & Another, the Mercantile Court held that, whilst a covenant that prevents a former employee from approaching any current or former customer of the employer might seem unreasonably restrictive in most cases, such a term may be appropriate on the facts of a particular case, looking at factors such as the employee’s seniority and the size of the customer base.
Mr Coppage ("C") was a former employee of Safetynet Security Ltd ("Safetynet"), a small security services business. He had a significant role in the Company and was seen as "the face" of the business. He resigned on 16 April 2012 and the next day a new company, Freedom Security Solutions Limited ("Freedom"), was incorporated. By 30 April 2012, five clients of Safetynet had moved their business to Freedom. Safetynet raised an action against C and Freedom for breach of the restrictive covenants in C’s contract of employment with Safetynet which stated that, for a period of six months following the termination of his employment, C could not approach any individual or organisation who, during his employment, had been a customer of Safetynet, if the purpose was to solicit business.
The Court held that C and Freedom, of which C was found to be the controlling mind, were in breach of the restriction. The restriction was held to be reasonable in the circumstances, and thus enforceable, taking into account factors such as its limited duration of six months, the fact it was limited to those who were customers during C’s employment, C’s key position in the business, as well as C’s own evidence that he had not found it difficult to obtain work outside Safetynet’s customer base. The Court rejected an argument that it should be limited only to customers that C had dealings with during his employment, as this wouldn’t have given Safetynet the necessary protection, given its relatively small client base. The Court also provided useful commentary on the meaning of solicitation and suggested that there would need to be some form of direct or targeted behaviour. As such, a general advertisement to the world about availability for custom at a new business or a specific notification to a client of departure from one business to another would not constitute solicitation.
Impact for employers
- Whilst this decision may seem surprising at first, it is a useful reminder that whether or not a restrictive covenant will be enforceable will always depend on the factual circumstances of the case. In this case, C’s prominent role in Safetynet, together with Safetynet’s small client base, meant a fairly wide restriction was ultimately enforceable, as it was necessary to protect Safetynet’s business, but didn’t prevent C from conducting other work for Freedom. As such, however, a clause drafted in similar terms is perhaps unlikely to be enforceable in the case of a larger business with a more substantial client base, or for a less prominent employee.