In  Levinwick v Hollingsworth [2014] IEHC 333 the court refused the plaintiff's application (a pharmacist owner) seeking to enforce a term in the defendant's (pharmacist manager) employment contract in which he agreed not to do similar work in another pharmacy within a 2 mile radius of his employer's business for a period of 24 months after the termination of his employment.  The case provides guidance on the circumstances in which a restrictive covenant may be upheld and the factors that a court will look at in determining the reasonableness or otherwise of the covenant.

The issue in this case concerned the enforceability of a covenant in restraint of trade. The court applied the test formulated in the case of Murgitroyd and Company Ltd v Purdy [2005] 3 I.R.1. This stated that the applicable test was whether in all the circumstances the nature of the restriction and its extent were reasonable to protect the goodwill of the employer. The court felt that the duration of the prohibition and its geographical scope were important matters to be considered having regard to the nature of the work in question and the structure of the business. Covenants against competition by former employees are never reasonable as such. They may be upheld only where the employee might obtain such personal knowledge of, and influence over, the customers of his employer as would enable him, if competition were allowed, to take advantage of his employer's trade connection.

Applying the test above, covenants can be enforced if they:-

  • Protect a legitimate business interest; and
  • Are no wider than reasonably necessary for the protection of that interest.

The court felt it was necessary to analyse the role of the pharmacist manager while he was working with the pharmacy, and the extent to which he interacted with customers of the plaintiff's business.

The defendant was one of two full-time pharmacists but as pharmacy manager had many administrative duties. The main role of the other pharmacist was to run the dispensary and she had a high level of customer contact.  Consequently, the defendant did not see himself as the "face" of the pharmacy. The pharmacist manager gave "persuasive" evidence that the plaintiff could have ascertained if any significant number of customers had followed him to his subsequent employment. Every customer of a pharmacy had a patient record number from which it could find out who its customers were before and after the defendant worked with the pharmacy. This evidence was not challenged and the plaintiff did not establish or seek to establish by way of empirical evidence what number of customers, if any, had followed the defendant to the other pharmacies where he worked after leaving the plaintiff's business.

The court felt that it could not ignore the fact that in the pharmacy there were a substantial number of employees, including two pharmacists and two locum pharmacists to cover weekends and backup. These facts had to be considered in determining what was reasonable and the extent to which it was likely that a particular pharmacist (i.e. the defendant) would have built up a special relationship with customers. The court also had to consider the particular role of the defendant as pharmacy manager which involved him in many administrative duties. These duties required him to spend a considerable amount of time in an office on the premises as opposed to front facing customer relations.

The court accepted the submission of the defendant that both the nature of the restriction and the extent had to be reasonable to protect the goodwill of the employer, if the clause was to be enforceable. Applying this rationale the court held that the plaintiff had not established that the nature of the defendant's position and his work in the pharmacy gave rise to such a personal connection with customers, that the restriction imposed by the clause was necessary to protect the goodwill of the plaintiff.  Accordingly the plaintiff's application for relief failed.

The case reiterates the care that needs to be taken in the drafting of restrictive covenants. As outlined above, if it is drafted too widely then the clause will not be enforceable. It also highlights the ongoing difficulty in advising on the parameters of restrictive covenants and that what may be acceptable in one case will not be upheld in another due to  the highly fact specific nature of these type of clauses. "Boilerplate" or standard clauses should be avoided. Careful thought and reasoning should be applied to the wording of such clauses, looking at the potential damage that may be inflicted by the departure of that particular employee and drafting the wording accordingly to protect the employer's interests on this basis.