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Restrictive covenants: courts cannot give effect to commercial common sense

31 July 2014 #Employment


The Court of Appeal has reaffirmed the well established principle that whilst a court can generally interpret an ambiguous clause it cannot rewrite a clause on the grounds that it does not make common sense and is contrary to the intention of the parties. 

Restrictive covenants are often used in employment contracts in order to guard against unfair competition.  They allow an employer to protect its business after an employee has left by restricting the employee`s future commercial activities. However, poorly drafted covenants can give rise to uncertainty or not provide any protection at all. This has happened recently in the case of Prophet plc v Huggett [2014] EWCA.

Mr Huggett was a sales manager for Prophet Plc, a software provider for the fresh produce industry. His employment contract contained covenants prohibiting the disclosure of confidential information and 12-month non-solicitation and non-dealing covenants, which applied to customers with whom he had dealt in the last year of his employment. He left Prophet and joined another company who also designed software for the fresh produce sector, a direct competitor. Prophet sought an injunction which prevented the claimant from joining the new company. However, read literally, the restrictive covenant provided no protection to Prophet. The covenant said that the claimant could not sell Prophet software elsewhere, which meant that the covenant was futile because no competitor would sell Prophet products anyway. The  High Court decided the clause offered no protection to Prophet and something must have `gone wrong` while drafting the covenant and decided to amend the clause such as to give rise to a commercially sensible solution.

Although the High Court granted an injunction the Court of Appeal has overturned it, on the basis that the clause had interpreted on the basis of what is clearly said, regardless of what the parties intentions were. Whilst this is a harsh decision, it makes the legal position clear - you have to get the clause drafted correctly at the time the contract is entered into, a court cannot rewrite it for you.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at employmentunit@clarkslegal.com by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.

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