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Restrictive Covenants

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Thanks to Ed McFarlane of Deminos HR for preparing this case summary

A restrictive covenant prohibited an ex-employee from approaching his former employer's customers to solicit business from them for six months post-termination, if the former employer could still do business with them. Was that an unreasonable restraint of trade?

No, says the Court of Appeal in Coppage v Safety Net Services.

The Appellant was a former key employee of the Respondent security company in Birmingham. He was made redundant and worked in competition with his former employer. A successful claim for damages by the former employer followed; the Claimant appealed unsuccessfully.

The principal issue was whether or not the covenant was unenforceable as an unreasonable restraint of trade. The Court of Appeal held that the restraint period of six months was a powerful factor in the overall reasonableness of the clause. Whilst noting that these cases are highly sensitive to the facts, Sir Bernard Rix noted that the purpose of the covenant was to place a key employee who was the 'face' of a business 'out of bounds' for a strictly limited period, to counter the diversion of customers who would have been realistically available to the former employee through his employment.

The Court observed that a previous, unreported Court of Appeal decision in this area, Arbuthnot Fund Managers Ltd v Rawlings should best be regarded as confined to the contractual provision and facts in question in that case.

The Court of Appeal declined, on the facts and history of the case, to comment on the impact of sections 170-177 of the Companies Act 2006 on the common law fiduciary duties of company directors (paragraphs 25-30), and left the finding on quantum undisturbed.