Employment Update Restraint Trade 0808

13 August 2008

Injunction to enforce restrictive covenant refused; sending samples to a customer was not the same thing as supplying goods.

In the case of Basic Solutions v Sands the High Court has had to consider the position of an employee who had signed a restrictive covenant which prevented him, for twelve months after leaving the employer company, from ‘negotiating with’ or ‘dealing with’ relevant customers (defined as those to whom in the previous 2 years the company had sold products and where he had been involved in the sale), causing them to ‘cease or materially reduce’ orders or contracts with the company.

Two days after leaving the company, the employee in question had been taken on by another company in the same line of business. Both companies were preparing to tender to supply a new product to the same customer. While he was with the company, the employee had been involved in the sending of sample products to that customer as a preliminary to being allowed to enter a tendering process.

The company applied to the High Court for an injunction, claiming that to be involved in the tender on behalf of his new employer would breach the employee’s restrictive covenant.

The High Court disagreed. The covenant was not wide enough to cover the present circumstances. The supply of samples to a customer to test prior to a supplier being permitted to tender for business did not come within the ambit of ‘negotiating with’ or ‘dealing with’ that customer.

Furthermore, the restricted period of twelve months was too long. The company could only say that there were long lead times in this industry and this was not enough to justify the length of the restriction.

The company was simply attempting to prevent the employee from engaging in the tendering process – a clear restraint of trade.

Point to note –

  • Restrictive covenants are only enforceable to the extent that they are reasonable in extent and duration and the employer has a genuine business interest to protect. So they must be very carefully tailored to meet the employer’s business needs. Where an employee is working on a new product in a competitive market, it will be better for any post-termination restriction to be worded so as to limit the extent to which he can work for a competitor rather than to attempt to limit his access to customers. Once we are instructed as to the commercial realities of any situation, we can advise on the kinds of restriction that may be possible to negotiate – and which may be upheld where necessary by the High Court.