UK: Restrictive covenants - BIS call for evidence; EAT ruling confirms unreasonable restraints cannot be bought

As part of an initiative to develop a National Innovation Plan to help make Britain the most attractive place in Europe to start up new businesses, the government is to investigate employment rules that could be stifling small businesses and entrepreneurship. In particular BIS plans to launch a call for evidence asking for views on whether non-compete clauses are acting as a barrier, hindering start-ups from hiring the best and brightest talent. While such covenants will only be enforceable if they are no wider than is reasonably necessary to protect legitimate trade interests (and therefore will not be enforceable where non-deal or non-solicit clauses would do the job), their inclusion in contracts can have a deterrent effect. Of course, as an employer, whether this is a good or bad thing depends on which side of the poacher/game-keeper fence you are sitting in any particular situation.

The call was formally launched on 25 May, with views on the use of all types of employment-related restrictive covenant sought by 19 July - click here for details and to submit your views.

Meanwhile, the court in Bartholomews Agri Food v Thornton has emphasised that payment during the period of a covenant which is too wide will not render it enforceable – it is contrary to public policy in effect to permit an employer to purchase an unreasonable restraint. This represents a slightly harder line than that taken in Turner v British Minerals, where the Court of Appeal considered that payment was a legitimate factor to take into account, although the employer still had to justify the restriction.

The case also highlights the well-established point that covenants need to be tailored to the particular role and updated as the employee's role changes. In this case, the covenants were imposed on the individual when performing a trainee role 20 years earlier. They were clearly inappropriate to that role and unenforceable when imposed and it was not possible to argue that they became enforceable when the individual was promoted to a more senior role where such covenants might be reasonable. The covenants were in any event too wide in prohibiting the supply of competing goods and services to any of the employer's clients regardless of whether the individual had had any dealings with those clients (and the employee had in fact only worked with customers representing 2% of the company's overall turnover).