Although the focus of this feature is the Employment Tribunal, unfortunately an employment tribunal does not have jurisdiction to consider claims concerning restraint of trade [i]. In this article we therefore look the Northern Ireland High Court and the recent decision of Holchem Laboratories Limited v James Henry ICOS No:20/79096 to examine its considerations on the enforceability of post-termination restrictive covenants.  This Judgment was delivered on 3 February 2021 following a rare, contested hearing on this subject.

The Plaintiff in this case, Holchem Laboratories, is a manufacturer of speciality hygiene products for the agri-food sector.  The Defendant, James Henry, had been employed for a second period by Holchem as a Regional Sales Manager responsible for the whole of the island of Ireland.  Mr Henry entered into a contract on 4 July 2017 which included 12-month post-employment restrictions preventing him from soliciting customers and prospective customers of Holchem, plus non-compete and non-dealing provisions which sought to prevent Mr Henry from dealing with customers or being interested in any business which was in competition with Holchem within the UK and Ireland.

Within its Judgment the High Court refused Holchem’s application to enforce restrictions against Mr Henry- however its Judgment provides useful guidance for employers and insight into the Court’s considerations when deciding whether to uphold and enforce restrictions of this nature.

Evidence of Solicitation Is Required

It was Holchem’s case that Mr Henry had actively solicited the business and custom of two former clients.  In support of this contention, they highlighted the fact that neither of these clients had placed any orders with the business following the departure of Mr Henry. Other evidence submitted included a text message in which Mr Henry advised one customer that he was considering moving to his new employer and subsequent conversations with the customer in question which confirmed that it would be dealing with Mr Henry’s new employer going forward.  In response it was Mr Henry’s contention that he did not solicit the custom of either customer but that they had followed him to his new employer of their own accord owing to their strong past working relationship.

In finding that the Plaintiff was not in breach of non-solicitation provisions, the Court concluded that the evidence provided by Holchem was circumstantial in nature and insufficient to prove solicitation.  It concluded that the reason the customers in question ceased business with Holchem was due to a “longstanding and friendly relationship with Mr Henry”.

Non- Compete And Non-Dealing

When considering the non-compete and non-dealing provisions, the Court referred to the principles set out in Merlin Financial Consultants Limited v Cooper [2014] EWHC1196 (QB) stating that the question of whether the restraint is reasonable or not must be assessed as at the date of the agreement was entered into and that a “restraint will not be reasonable between the parties if it provides the party in whose favour it is imposed with more protection than is justified in the circumstances.”

In concluding that the non-compete and non-dealing restrictions against Mr Henry were not enforceable, the Court commented that there was no evidence before it in relation to certain important matters, including:

1. Why the period of 12 months was reasonable and why a lesser period of 6 months or 3 months would not suffice to protect Holchem;
2. Why it was necessary for the restriction to extend to the whole of the UK and Ireland in the particular circumstances of Mr Henry;
3. Why the restrictions should extend to the entirety of the Plaintiff’s group of companies;
4. The necessity for the restriction to extend to a hypothetical customer “one who had not been a customer of the Plaintiff for, say, 11 months”;
5. The extent to which Mr Henry’s working for a competitor might affect the Plaintiff’s business; and
6. Evidence as to the general practice in the industry in relation to restrictive covenants.

Notably, the Judgment commented that Mr Henry’s contract was simply “the Plaintiff’s template covenants, applicable to every employee, irrespective of the nature of their employment”.

In the Court’s findings it concluded that the unequal bargaining positions of the Plaintiff and the Defendant at the time when the contract was entered into was relevant to the reasonableness of the restrictions noting that the contract was provided to Mr Henry  “on a very much take it or leave it basis” and that there was no likelihood of his being able to object to the inclusion of the restrictions.

For these reasons, and in all the circumstances the Court found that the covenants relating to competition were unreasonable and therefore void.

Comment

This case provides a useful illustration of matters which an employer should apply its mind to when drafting and entering into restrictive covenants with employees at the outset of their employment.  It is clear from this Judgment that employers should resist the temptation to simply introduce template restrictions for staff members irrespective of their duties or position. Consideration should be given to the particular circumstances and the role of each employee when deciding the duration and extent of restrictions that are necessary to protect their business.