The enforceability of a restrictive covenant often turns on a word or phrase. There is therefore a tendency to focus on the minutiae when looking at restrictions. This case shows that you also need to take into account the bigger picture. It has worrying implications for employers, who may not have been seeing the wood for the trees.
In this case, CEF made and sold electronic components. Two managers and 17 other (more junior) staff members left to join a competitor business, trading as Yesss Electrical. CEF were concerned that the managers had been encouraging staff to go with them.
The two managers were not subject to any post termination restrictions in their contract. The junior members of staff had restrictions which stopped them poaching any employee of the company for six months post termination, or from being involved in any competitive company.
CEF applied for an injunction to enforce the contractual restrictions against the junior members of staff , and for a springboard injunction against the managers. It argued that it had a legitimate business interest to protect (the stability of its workforce), and that the restrictions were reasonable.
CEF was granted the injunctions at an interim hearing, but it had made the applications without notice. When the Court heard the other side's case, it lifted the springboard injunction and made a number of comments about the way in which without notice applications should be made (which are not relevant for this article). Given a number of drafting issues with regard to the covenants, the Court also lifted the restrictions against the junior members of staff. It held that these restrictions were too wide – the employees wouldn't even know who they weren't allowed to solicit, given the size of the company. This is not in itself surprising. However, the significant aspect of this case was that the Court also questioned whether the business was really seeking to protect a legitimate business interest by looking to enforce these restrictions. It took into account the lack of any restrictions on managers and the short (one week) notice periods required from juniors. It decided that, by failing to take appropriate action in relation to notice periods and managers, the business had failed to establish that it cared about the stability of its workforce. As a result, it could not show that it was seeking to protect a legitimate interest and the restrictions were unenforceable.
This is a potentially worrying development for employers. While this case compared the contracts of employees who were all accused of wrongdoing, it is possible that the principle could have wider application. In the past, the Court has apparently been content to examine in isolation the contract of the employee accused of breaching obligations. Now, it may be possible for an employee with an apparently reasonable restriction to argue that the lack of restrictions on other key members of staff renders his or her own restriction unenforceable. This theoretically applies not only to employers who use contracts which do not contain restrictions – it could also apply to employers who have issued contracts to senior managers but who have not chased for the managers' signatures.
Employers should therefore ensure that they are properly protected with regard to all key employees. The contracts need to be clearly and appropriately drafted, but employers also need to be consistent in their use of restrictions. In particular, they should insist on signed contracts from managers as a condition of joining, and ensure that levels of protection are reviewed and updated as appropriate (particularly after promotions).