[2025] EWHC 2873 (KB)

In the English and Welsh free-market, capitalist economy, trade is encouraged and restraint of trade is discouraged, unless it is justified. In the field of employment contracts, post-termination restrictive covenants against competition are only permitted and hence enforceable in so far as they go no further than is reasonably necessary to protect the employer’s legitimate business interests, see Office Angels v Rayner-Thomas [IRLR] 214, per Sir Christopher Slade at [20-26]. The RCC must be reasonable in the interests of both parties [21]; the employer cannot restrain pure competition by the employee using his acquired skills [23]; but can protect its identified business asset or advantage which it would be unjust to allow the employee to appropriate for his own purposes [24]. He went on to rule:

“25.

(5) If, however, the Court is to uphold restrictions which a covenant imposes upon the freedom of action of the servant after he has left the service of the master, the master must satisfy the Court that the restrictions are no greater than are reasonably necessary for the protection of the master in his business: (see Mason v Provident Clothing & Supply Co Ltd. [1913] AC 724 at p.742 per Lord Moulton). As Lord Parker stressed in Herbert Morris Ltd v Saxelby (supra) at p.707, for any covenant in restraint of trade to be treated as reasonable in the interests of the parties 'it must afford no more than adequate protection to the benefit of the party in whose favour it is imposed' [Lord Parker's emphasis].”

There are three stages to this assessment. Firstly, this Court needs to construe the contract to determine what it says, secondly consider whether the employers have shown that, at the date of the contract, they had a legitimate business interest which required protection by an RCC, and thirdly, the RCC must be shown, on the evidence, to have been no more than was reasonably necessary, through the eyes of a reasonable person in the position of the parties at the date of the contract, having regard to the interests of both parties, the contractual provisions as a whole and the factual matrix, to protect the legitimate business interests, see TFS Derivatives Ltd v Morgan [2005] IRLR 246, per Cox J at [36-38]. Even, if it is found reasonable the Court must then decide whether to grant a discretionary injunction.

The principles of construction of contracts are summarised in Chitty on Contracts 25^th Ed. paras 16-053 to 16-110. A useful summary on construction of RCCs was given by Calver J in Quilter v Falconner [2022] IRLR 227, [167-170]. I must take into account the objective meaning of the words and ascertain what a reasonable person with all the background information reasonably available to the parties would have meant by using those words. I must consider the contract as a whole. Where two possible constructions are possible and realistic, I should prefer the one consistent with business sense. I should consider the quality of the drafting and that one party may have agreed to something which in hindsight was not in his interests.

The approach to construction of restrictive covenants and validity was considered by the Supreme Court in Egon Zehnder [2019] ICR 1223, IRLR 838 SC,by Lord Wilson JSC. If the principle of validity applies, the parties are considered to have intended for the contract to be valid [38]. So, if a clause in the contract is capable of having two meanings, one which would result in its being void and the other which would result in its being valid, the latter should be preferred [38]. Lord Wilson then examined two schools of thought on when the validity principle applies: is it only if the two constructions are equally plausible? Or is it when the clause is ambiguous and the RCC is at least susceptible to the alternative construction? He chose a middle line and ruled that the alternative construction must be “realistic” to be preferred under the validity principle [42].

The Court has power to sever (blue pencil) offending words in an RCC provided they can be excised without a major change to character of the remaining restrictive covenants, or the need to add to or re-write them, see Egon Zehnder per Lord Wilson JSC [85-89].

RCCs have been enforced where the employer proves a reasonable necessity to protect confidential information and where there is proven difficulty in establishing a breach and/or difficulties policing non-solicitation or non-dealing covenants with existing customers. The Court’s task is to examine all the evidence and involves separating out the employee’s skill, experience and know how (which he may use to compete) from the employer’s trade secrets, which the employers must particularise and for which it may be entitled to protection, at least for a reasonable period of time, see Thomas v Farr [2007] IRLR 419, CA, per Toulson LJ:

“37.

… FSS Travel and Leisure Systems Limited v Johnson. In that case the employee was a 25 year old computer programmer. He worked entirely on a computerised booking system devised by the employer for the travel industry. The system consisted of a large number of separate programmes which interacted with each other and which were constantly updated. The employer conspicuously failed in its pleaded case or in its evidence to identify what it was about the system which was said to be confidential.

38.

Mummery LJ set out what he described as “well settled legal propositions affecting restrictive covenants in an employment contract”, beginning with the propositions that the court will never uphold a covenant from an employer merely to protect himself from competition by a former employee, and that there must be some subject matter which an employer can legitimately protect by a restrictive covenant. He cited the words of Lord Wilberforce in Stenhouse Limited v Phillips [1974] AC 391 at 400 that:

“The employer's claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee, may have contributed to its creation.”

39.

Lord Wilberforce was using the word property only in a general sense, as he indicated, because it is now well established that (aside from any obligations undertaken by contract) the law relating to confidential information is an equitable invention and is not founded on the concept of information as property. (For the latest relevant authority rejecting the property theory, see Douglas v Hello! Limited (3) [2005] EWCA Civ 595, [2006] QB 125 at 126 to 127.)

40.

Mummery LJ went on to observe that the employer had failed to adduce sufficiently cogent relevant evidence to identify and establish a separate body of objective knowledge qualifying for protection as a trade secret by means of a restrictive covenant.

41.

In order to establish that the inclusion of a non-competition clause in an employment contract was reasonably necessary for the protection of the employer's interest in confidential information, the first matter which the employer obviously needs to establish is that at the time of the contract the nature of the proposed employment was such as would expose the employee to information of the kind capable of protection beyond the term of the contract (i.e. trade secrets or other information of equivalent confidentiality). The degree of the particularity of the evidence required to establish that matter must inevitably depend on the facts of the case. To say this is to say nothing new. Aldous LJ stated the principle in Scully UK Limited v Lee [1998] IRLR 263 at 23:

“In cases where a restrictive covenant is sought to be enforced, the confidential information must be particularised sufficiently to enable the court to be satisfied that the plaintiff has a legitimate interest to protect. That requires an enquiry as to whether the plaintiff is in possession of confidential information which it is entitled to protect. (See Littlewoods Organisation v Harris [1977] 1 WLR 1472 at 1479F). Sufficient detail must be given to enable that to be decided but no more is necessary.”

42.

Provided that the employer overcomes that hurdle, it is no argument against a restrictive covenant that it may be very difficult for either the employer or the employee to know where exactly the line may lie between information which remains confidential after the end of the employment and the information which does not. The fact that the distinction can be very hard to draw may support the reasonableness of a non-competition clause. As was observed by Lord Denning MR in Littlewoods Organisation v Harris at 1479 and by Waller LJ in Turner v Commonwealth and British Minerals Limited [2000] IRLR 114 at para 18, it is because there may be serious difficulties in identifying precisely what is or what is not confidential information that a non-competition clause may be the most satisfactory form of restraint, provided that it is reasonable in time and space.”