Enforceability of Restrictive Covenants

The Court of Appeal has recently ruled that a restrictive covenant that restricts an individual's work after their termination will only be enforceable if it goes no further than to protect an employer's legitimate business interest.
The case of Beckett Investment Management Group Ltd v Hall and others concerned two financial advisers whose contracts of employment contained a restrictive covenant preventing them from working for any of the Beckett Investment Management Group's clients for a period of twelve months after their terminations.

Beckett, a holding company, was the principal employer of the two individuals. The holding company itself did not have any clients, but a number of its subsidiaries did. A clause in the two individuals' contracts of employment prevented them from soliciting or dealing with any clients of the holding company for 12 months after the end of their employment.

The two individuals in question resigned from their positions and set up their own business. Soon they began to solicit clients belonging to a subsidiary company of Beckett.

Beckett brought proceedings against the two individuals for breaching their restrictive covenants. The matter reached the Court of Appeal after the High Court deemed the covenants unenforceable because Beckett itself had no clients.
The Court of Appeal over turned the decision in the High Court and ruled that the covenants did apply. The Court stated that the parties clearly intended that the clause in question should apply to Beckett's subsidiary companies. Given the two individuals' familiarity with the company structure of Beckett, they would have been aware of this when they resigned.

The Court ruled that the covenants, although 12 months long, were reasonable given the seniority and importance of the two individuals, and given Beckett's need to maintain client loyalty following their employees' departures.
This case re-iterates that the fundamental question that the Court will ask when deciding on the validity of restrictive covenants is whether the covenants are necessary to protect the legitimate business interest of the employer. Employers should be mindful of this when drafting restrictive covenants, and ensure that they go no further than this.