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GN Law Media: How enforceable are restrictive covenants?

Frequently cases are reported which highlight the importance of carefully drafted restrictive covenants within a contract of employment which are not only relevant but carefully defined and not too wide.  This month is no exception with the case of Stallergenes (UK) Ltd v Stern and Anor (2013) being reported. 

In this case, the applicant pharmaceutical company had applied for an injunction to prevent two of its former employees starting up a business which it alleged was in breach of the restrictive covenants within their respective contracts of employment.  The employees had been approached by another Company Z to sell an adrenaline pen so they formed a company together to distribute it.  The employer had had some discussions with Z about the same but had not taken it further, not did the employer sell any such pens or offer them as one of its products.  The restrictive covenants in the contracts stated that the employees could not compete with company interests in the business.  A dispute arose as to what was meant by the term “business”.

The injunction was refused.  The employer was not in the business of selling those pens and therefore the employees were not caught by the covenant.  Construing the term more widely to mean any pharmaceutical product would result in an unenforceable covenant as it would be too wide. 

Once again the case highlights the importance of ensuring that any restrictive covenants that employers wish to rely upon are well drafted with careful thought as to what the employer is trying to achieve.  When other contractual changes are made it is also well worth reviewing the effectiveness of the covenants at that time particularly as employees rise in seniority and increase their knowledge of the business in particular customers, financial information and product knowledge.  

Sarah King, Consultant Solicitor

Posted on Tuesday, 30th July 2013