Covenants Restricted From Becoming Enforceable Despite Employee’s Promotion

In the recent case of PAT Systems v Neilly the High Court has held that a restrictive covenant that was deemed unenforceable when it was entered into does not become enforceable by virtue of an employee’s promotion.  This will be the case unless it was the unequivocal intention of the contract that this was its intended effect at the time that the contract was entered into.  The judgment in this case sets a particularly onerous requirement on the parties to the contract if their intention is for the covenant to become enforceable at a later date.  Despite the employee’s agreement that the previous terms of his contract would ‘remain unchanged’, this was not a sufficiently clear agreement to enable the employer to enforce the restrictive covenant.

The matter turned on the enforceability of a 12 month non-compete clause that the High Court deemed could not be justified for the status of the employee in this case.  The employer argued that the issue of reasonableness should have been judged at the point that the employee was promoted in 2005 and not when he became initially employed.  However, the court held that for the covenant to have been enforceable the parties would have had to have entered into it afresh at the time of the promotion. 

The Court also commented that 12 months was a very long time to keep any employee, even a well-paid senior employee, out of work in the only industry in which he had employment experience.  Neither the employee’s trade connections, nor the confidential information of which he was aware, required protection for that length of time in the market in which he operated.  If the covenant had only restricted the employee for 6 months, the Court said that there was a distinct possibility that it may have remained enforceable, as six months would have been sufficient to mitigate the potentially unfair advantage to a competitor of having access to his trade connections.

The court considered that it would be unreasonable for every contractual change to have the potential to be revived at a later date.  It would be unreasonable for an employee to have to backtrack through his entire employment history with a particular employer and consider every clause that was initially unreasonable that may change applicability.

At Forbes, our Employment solicitors are experienced in advising employers on all aspects of employment law and employers should aware that this decision may mean that they will have to be more considerate when changing an employee’s terms of employment.  For advice on whether the terms of your employees’ contracts will remain enforceable please get in touch.

This entry was posted in Employment Law.