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Employment Law

Legal guidance - compliance - software

28 JAN 2013

PAT Systems v Neilly [2012] EWHC 2609 (QB); [2012] IRLR 979; (2013) EMPLR 004

Restrictive covenant - reasonableness

21 June 2012

Queen's Bench Division

Underhill J

Restrictive covenants (ie clauses in employment contracts restricting competition by employees after their employment ends) are only enforceable if they are reasonable and necessary, and no wider than necessary, to protect some legitimate interest of the employer (such as trade connections or confidential information). This case shows that the reasonableness of a restrictive covenant has to be judged as at the time the contract which included the covenant was made.

N started his employment as an account manager. His contract included a restrictive covenant preventing him from competing with his employers for 12 months after his employment ended. He was eventually promoted to director of global account management, with a significant increase in salary and benefits. He signed a letter agreeing to the terms set out in that letter and also agreeing ‘that all other terms and conditions outlined in my original documentation remain unchanged.'

He resigned and started working for a competitor. The company applied for an injunction to enforce the non-competition clause. The court refused the injunction because a 12-month non-competition clause was unreasonable for an account manager. It was therefore void when the contract was made and remained void even after he was promoted to a position where such a clause might have been reasonable.

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