Failing to enforce restrictive covenants

In Associated Foreign Exchange Ltd v International Foreign Exchange (UK) Ltd and another, the High Court held that there was insufficient evidence that a restriction of 12 months went no further than was reasonably necessary to protect an employer’s legitimate business interests. The High Court therefore confirmed that it would not grant an injunction to prevent an ex-employee soliciting its customers. The non-solicitation clause stated:

“The employee undertakes that he will not, in any capacity (without the previous consent in writing of the employer) for a period of 12 months immediately after the termination date, in any capacity for a competitor, negotiate or, solicit business from, or endeavour to entice away from the employer a customer, or a potential customer.”

The contract also contained a six-month post-termination “non-dealing” clause and provided that the duration of both clauses should be reduced by any period spent on garden leave.

Even though the company that the employee went to was in direct competition with the company, the application for an injunction preventing the ex-employee from soliciting customers and potential customers for 12 months (less the time the ex-employee had spent on garden leave) was refused, mainly because it was found that the ex-employee was not particularly senior to warrant such a restriction. However, it was found that, as there were legitimate interests to protect, a non-solicitation clause was justified.

The judgment also concluded that even if a more reasonable shorter restriction had been in place, the fact that there is no definition of customers or potential customers meant that the clause was too widely drafted in any event.

Lessons should be drawn from this, to ensure the durations of restrictions are no wider than reasonably necessary to protect the legitimate business interests of the company’s interests, and that such restrictions contain appropriate definitions within the clause. Reasonable necessity is to be assessed from the perspective of reasonable persons in the position of the parties as at the date of the contract, having regard to the contractual provisions as a whole and to the factual matrix to which the contract would then realistically have been expected to apply.