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Law for Business

Knowhow - guidance - precedents

14 NOV 2013

How much can an employer rely upon its employees’ post-termination restrictive covenants?

Clarkslegal

Many businesses will want to rely upon restrictive covenants in their employees' contracts when the employment relationship is terminated, for example, to prevent employees from poaching customers or setting up a competing business. Whether such restrictive covenants are legally enforceable is a notoriously complex area and employers must establish that they have a legitimate business aim which requires protection and that the relevant restriction is reasonable in scope. In a refreshingly clear judgment, the Court of Appeal has confirmed that the length of a non-solicitation clause is a "powerful factor" in assessing its overall reasonableness.

In Coppage v Freedom Security and Safety Net Security (2013), Mr Coppage, a former business development director of the Respondent security company (Freedom Security), was made redundant and went on to work in competition with his former employer. Freedom Security successfully claimed damages of £50,000 for breach of contract, which was upheld by the Court of Appeal.

The relevant clause provided that: "It is a condition of your employment, that for a period of six months immediately following termination of your employment for any reason whatsoever, you will not, whether directly or indirectly as principal, agent, employee, director, partner or otherwise howsoever approach any individual or organisation who has during your period of employment been a customer of ours, if the purpose of such an approach is to solicit business which could have been undertaken by us."

The Court found that the restriction was reasonable and enforceable, on the basis that:

  • Mr Coppage was a key employee; he had played a significant role as the company's outward "face" and had contact with all of its customers;
  • As the company's customer list was very stable it was reasonable for the covenant to relate to all customers, as opposed to only those customers Mr Coppage had dealt with in the last 12 months (as is often the case); and
  • In limiting the clause to business that "could" have been undertaken by the company, its purpose was clearly to prevent Mr Coppage from soliciting the realistically available custom of customers known to him through his employment with Freedom Security, not the custom of those that went elsewhere for other reasons.

Whilst this case emphasises the need for care in drafting bespoke restrictive covenant clauses to give them the best chance of being legally enforceable, it also shows that the courts are willing to enforce reasonable restrictive covenants where protection is justified.

Liz Timmins, Senior Solicitor, Clarkslegal LLP
Tel: 020 7539 8065
Email: LTimmins@clarkslegal.com

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