In Patsystems v Neilly a former employee was defending a claim to enforce a restrictive covenant. He originally joined the business, a company selling financial trading systems software, as an account manager. His contract included a "non-compete" clause, under which he was prevented from joining a competitor within 12 months of leaving the company. Over the years the defendant received several increases in responsibility, culminating in 2005 with his promotion to the position of director of global account management. At this point he signed a letter varying his job title, salary and notice period. The letter also acknowledged that "all other terms and conditions outlined in my original documentation remain unchanged". When he gave three months' notice of resignation in 2012, saying he was leaving to join a competitor, he was summarily dismissed.
The High Court had to consider whether to enforce the covenant. Restrictive covenants are construed strictly; they must not restrain the employee more than is necessary to protect the employer's legitimate interests. Scrutiny of non-compete clauses tends to be particularly rigorous.
Here the Court decided that the covenant was not enforceable because it was not appropriate for someone of the status of the defendant when he joined back in 2000. The time for assessing the reasonableness of the covenant is the date the contract is made. The covenant was not reasonable then and could not be made so merely by the employee's subsequent change of circumstances.
In these circumstances it is not enough just to ask the employee to confirm that the terms from his original contract remain in force; the employer has to go further and get an express acceptance of the particular covenant (or ask the employee to sign a new contract containing that same covenant).
The Court also added that, even viewed in 2005, the anti-compete clause was excessive. Bearing in mind the market in which the company operated and the type of information it was looking to protect, six months would have been sufficient. It was also telling that:
- other (less senior) colleagues had six month restrictions, as did the defendant's new contract with the competitor
- the employer's customers also bought competitors' products; in other words, a competitor would not gain access to new customers by employing the defendant - the most they might get would be the benefit of a closer relationship with an existing client
- the evidence indicated that this was a fairly transparent market; there was no legitimate expectation of pricing and product information being treated as a closely guarded secret.