Court of Appeal dismisses software company's attempt to enforce restrictive covenant
The Court of Appeal in Prophet plc v Huggett ruled that an incorrectly worded restrictive covenant, intended to prevent an employee working for a competitor, could not be retrospectively re-written to provide the protection that Prophet, a software company, must surely have meant.
Prophet developed and sold software to the fresh produce industry, and Huggett, their employee, had an employment contract with a restrictive covenant preventing him ‘from selling Prophet's software’ for a period of time after he left Prophet’s employment.
He then joined a competitor selling competing software but which was of course not Prophet software – which was only sold by Prophet. The High Court held that Prophet must have meant to restrict Hugget from selling competing software, had simply drafted the Clause in error, and so the Clause should in fact be re-written to reflect the actual intention of the parties. This is quite a common thing for the Courts to do where there was a clear intention to mean something other than the strict interpretation of a badly drafted contract term.
The Court of Appeal however disagreed, pointed out that the way the Clause was drafted was not at all ambiguous (in which case a re-write may have been allowed) it was just badly drafted. Prophet had drafted the covenant badly and would have to live with the consequences.
For all employers (and smaller employers are often most vulnerable) restrictive covenants and Confidential Information Clauses (which covers things like customer contact lists) are critical and should be carefully drafted. There is no such thing as an ‘off the shelf’ clause, as each business has unique needs.
As a result of this case we suggest you:
Review your restrictive covenants and CI clauses (and if you haven’t got them, consider whether they might be necessary);
Check the definitions of what you’re trying to restrict are fit for purpose;
Do not use post-employment restrictions of longer than a year (they won’t be enforceable);
Remind employees of their presence and purpose from time to time.
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