Restrictive covenants: An effective way of protecting your business

The facts

Mr Coppage was employed by Safety Net Services as their business development Director. Mr Coppage was in part responsible for winning new business for the company and described himself as “the face” of the business.

In April 2012, Safety Net started a redundancy process and Mr Coppage decided to resign. After leaving Safety Net, Mr Coppage started up a new company in competition with Safety Net called Freedom. Mr Coppage had solicited business from Safety Net’s customers.

Mr Coppage’s contract of employment contained the following restrictive covenant: “It is a condition of your employment, that for a period of six months immediately following termination of your employment for any reason whatsoever, you will not, whether directly or indirectly as principal, agent, employee, director, partner or otherwise howsoever approach any individual or organisation who has during your period of employment been a customer of ours, if the purpose of such an approach is to solicit business which could have been undertaken by us.”

The question before the Court of Appeal was whether this clause was enforceable as a reasonable non-solicitation clause.

The Court’s ruling

The Court of Appeal ruled that, on the particular facts of this case, the clause was reasonable and enforceable for several reasons: 

1. The Court noted that the restriction applied for six months which the Court considered to be a “fundamental consideration of reasonableness”. The Court suggested that if the restriction applied for a period as short as six months, this must be considered as “a powerful factor in assessing the overall reasonableness of the clause”. 
2. The Court placed great weight on the fact that Mr Coppage was a key employee. This meant that he would have been able to influence customers to leave. 
3. The Court accepted that a restriction across all customers for the period of Mr Coppage’s employment was reasonable. The Court rejected the proposal that to be reasonable this should have been limited to customers in the past 12 months. 
4. The Court placed emphasis on the limitation in the last line of the covenant, which Mr Coppage was unable to solicit customers where the work “could have been undertaken by [Safety Net]”. The Court decided that this strengthened the argument that the covenant was reasonable as if a customer had left on bad terms, Mr Coppage would have been free to approach them. 

Implications for employers 

A key implication of the judgement is the suggestion that where a restriction only applies for six months, it is far more likely to be considered reasonable. It remains to be seen whether this approach will be followed in subsequent judgments. Our view is that the period for which the restriction applies is just one factor to be taken into account when assessing the reasonableness of a restrictive covenant. In our view, it is unlikely that the time period will be a “fundamental consideration”, if the restricted activities are too widely drafted. 

Cases on restrictive covenants are highly dependent on the individual facts. The same restrictive covenant could be found to be wholly unreasonable on a different set of facts. However, this case serves as a useful reminder that where well drafted, restrictive covenants are an effective way of protecting your business. 

Our advice 

You should carefully consider the use of restrictive covenants in your organisation and the wording used in relation to each and every employee. We would discourage you from placing so called “standard” restrictive covenants into all of your employment contracts. The enforceability of restrictive covenants will depend entirely on the particular facts and circumstances of both the employee and the employer. 

We recommend that you regularly review any restrictive covenants in your contracts of employment and consider whether they are reasonable, taking into account all the relevant circumstances.

Should you wish to discuss the implications of this case on your business or want us to undertake a review of your contracts of employment, please contact Anna Dabek, Senior Associate in our Employment Team, on 0121 214 3521 or anna.dabek@anthonycollins.com.

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