The first defendant in One Step (Support) Limited v Morris-Garner was a director and 50% shareholder in One Step, a company which provided supported living services in the West London and Thames Valley areas. When her shares were bought out by her co-director in December 2006 for over £3 million, she signed a deed whereby she agreed not to be engaged in "material competition" with One Step, or solicit its clients or customers, for a period of three years. The deed also contained confidentiality obligations. The second defendant, the first defendant's civil partner, agreed to the termination of her employment by One Step and entered into identical restrictive covenants for the same three year period, save that they did not include the confidentiality terms.
It turned out that, unknown to One Step, the first and second defendants had already incorporated a rival company, Positive Living, the previous summer. The shares in that company were owned 51% by the first defendant and 49% by the second defendant.
In August 2007 Positive Living started trading, operating as a domiciliary care agency in West London, the Thames Valley and the West Midlands and dealing with the same local authorities who had given business to One Step. One Step's business experienced a significant downturn and they brought a claim against the defendants for breach of the restrictive covenants.
The claims were upheld by the High Court. The Court decided that "in material competition" should be interpreted broadly. It was not necessary that the services offered by Positive Living were precise substitutes for those provided by One Step, only that they were sufficiently interchangeable so that they were within the same market. So it did not matter that Positive Living offered a broader range of care services than One Step. However, the Court did find that there was no breach in respect of the business in the Midlands – although One Step had plans to expand there, these were not at an advanced stage in 2006.
The second defendant argued that, as she was only an employee and not a shareholder of One Step, the covenants she entered into were unreasonable and unenforceable, even though they may not have been objectionable in a business sale context. The "restraint of trade" rule (which applies equally to agreements outside the employment contract) is that covenants can be no wider than is reasonably necessary to protect the business' legitimate interests and a three year period of restriction would typically be regarded as going significantly beyond what is reasonably necessary in the context of an employment relationship. But the court found that her very close association with the first defendant (both personally and professionally) meant that it was necessary for her to enter into the covenants to give the purchaser reasonable protection against competition from the first defendant as vendor.