In Boydell v NZP Limited and another, the Court of Appeal has found that words in a twelve-month non-compete covenant could be severed from the clause. As a result, the clause that prevented a former employee from working for a competitor within his specialised field was enforceable.
What are Non-Compete Clauses?
The employment contracts of senior staff often contain post-termination provisions preventing them from working for a competitor. These are often referred to as non-compete clauses. However, for such a clause to be enforceable, the employer must be able to show that it has a legitimate business interest to protect and the clause is no wider than is reasonably necessary to safeguard that interest.
Background
NZP Limited, a company specialising in the niche area of production and sale of bile acid derivatives for use in the pharmaceutical industry, engaged Dr Boydell as a senior employee. As part of that role, he worked closely with the company’s main customers and was familiar with their trade secrets and confidential information. Dr Boydell’s contract of employment included a 12-month non-compete clause, preventing him from working at a competitor of either NZP or any other company within the same group for 12 months after his employment ended.
Dr Boydell resigned and informed NZP that he was planning to join their main competitor. NZP subsequently asked the High Court for an injunction to allow them to enforce the non-compete clause in Dr Boydell’s contract of employment. In response, De Boydell complained that the non-compete clause could not be enforced as it was too wide, resulting in an unfair restraint on trade.
What did the High Court Decide?
The High Court held that some parts of the clause were too restrictive and should be severed from the non-compete clause. Severance avoids the invalidity of the whole clause by allowing the court to, in certain circumstances, sever (effectively delete) wording from a contract leaving the remaining terms of the contract in force.
The High Court severed the wording in the contract relating to working for competitors of NZP’s group companies but found that the remainder of the clause was valid and enforceable. On this basis, it awarded an interim injunction upholding the non-compete clause.
Dr Boydell appealed to the Court of Appeal, arguing that as drafted, the covenants were too wide, even after severance, and would prevent him from working at any company that produced general pharmaceutical products, including nasal sprays. As such, the clause went beyond what was necessary to protect NZP’s interests and should not be enforceable.
The Court of Appeal’s Decision
The Court of Appeal concluded that the High Court had been entitled to sever words from the clause and grant the interim injunction.
It rejected Dr Boydell’s argument, finding that the parties did not intend that he would be precluded from working at any company that produced general pharmaceuticals when the contract was signed.
The Court felt that, while the clause was wide even after severance, this was acceptable given that both NZP and the competitor for whom Dr Boydell planned to work operated in a very specialised area. As a result, it was reasonable to apply a widely drafted non-compete covenant because Dr Boyd had accepted a high-ranking position within the competitor and it was not viable to shield him from competitive activity in these circumstances.
Non-Complete Clauses: The Takeaway
It is quite rare for courts to enforce 12-month non-compete covenants, but it will ultimately depend on the facts of the individual case. In this instance, the court took into account Dr Boydell’s very senior position, that he worked in a very niche business and that he had considerable access to important trade secrets and confidential information.
It did note, however, that if NZP were a larger company covering a variety of different business fields, the situation would be different and a wide non-compete clause would be more difficult to defend in that situation.
Our expert Employment team can offer practical advice on how to best protect your business. If you are unsure if your non-compete clauses are enforceable, or are concerned about an ex-employee’s activities, email us at info@witansolicitors.co.uk.
