The traditional approach taken by the English Courts to restrictive covenants was confirmed in the decision of the Court of Appeal in Prophet plc v Huggett [2014] EWCA Civ 1013. The Court of Appeal overturned a High Court judge’s decision that the words “or similar thereto” should be added to the relevant clause in order for it to make commercial sense and the injunction against the employee was disregarded.

Prophet is a software company which sells its software products to the fresh produce industry. Mr Huggett was a sales manager for Prophet. His contract contained (amongst other post-employment restrictions and obligations) a 12-month non-compete clause from selling Prophet software following the termination of his employment. Mr Huggett joined a competitor which sold competing software but, technically, not Prophet software. Therefore, on a literal interpretation, the non-compete provided no protection to Prophet and proved futile, as only Prophet sold Prophet software.

The Court of Appeal unanimously confirmed the position that restrictive covenants should be strictly interpreted unless the covenant is ambiguous and the literal meaning could lead to absurdity. Only  in the latter case, could a restrictive covenant be subject to judicial reinterpretation to give effect to a commercially sensible solution which reflects the true intention of the parties. But this was not the case here – the restrictive covenant was simply poorly drafted and the draftsman  (although professional) failed to consider the extent of any practical benefit which Prophet would derive from the restriction on competition.

This case serves as bold reminder that:

  • Careful thought and drafting: Restrictive covenants should be carefully considered and drafted. The drafting and literal language should reflect the true intention of the employer. If it’s not covered by the restrictive covenant itself  it’s not likely to be enforceable. In practical terms, employers should at the outset of the drafting process consider what competitive activities and eventualities it wants the employee to be prevented from engaging in following the termination of employment.   
  • Once you’ve made your bed, you must lie in it: The English Courts generally prefer not to interfere with and change private contracts agreed  between parties. This case was an illustration of that very point.  An employer therefore cannot general rely on the Court to rescue it from a badly drafted covenant and cure its bad deal. In the Court’s words, “Prophet made its . . .  bed and it must now lie upon it”.  

As a reminder, please join us for our complimentary webinar on international trade secret and non-compete issues on July 31, 2014.