‘Gagging’ clauses, also known as non-disclosure agreements (NDAs), can be found in employment contracts, a separate standalone document more…
Restrictive covenants – are they enforceable?
Restrictive covenants in employment contracts are often included to protect the employer’s business by restricting the activities of an employee, generally after the employment has ended. However, the restrictive covenant has to be balanced with the restraint of trade principle, in that an individual should be free to follow their trade and use their skills without undue interference.
In the recent case of Freshasia Foods Ltd v Jing Lu  EWHC 3644 (Ch), Mr Lu, who was employed by Freshasia Foods Ltd (a supplier of specialist food products to Chinese retail shops and restaurants), left to work for its competitor, Kung Fu.
Mr Lu had worked as Freshasia Foods’ Marketing Advertising Manager and had signed a non-solicitation clause in his employment contract which prohibited him from soliciting, or attempting to solicit, any business from Freshasia Foods’ current or potential customers for a 12-month period after the termination of his employment. A non-competition clause also prohibited him from directly or indirectly competing with the business during his employment and for 12 months post-termination.
Mr Lu left Freshasia Foods to work for Kung Fu to do virtually the same job, and, as a result, Freshasia Foods issued proceedings against Mr Lu, seeking to enforce the post-termination restrictions in his contract and seeking an interim injunction pending trial.
The High Court held that the inclusion of potential customers in the scope of prohibited activities was greater than is reasonably necessary to protect Freshasia Foods’ interests and that protection should be granted only to the extent that goodwill was built up with actual customers.
Freshasia Foods would likely suffer un-compensatable loss if no injunction was granted. As the non-competition provision was wider than necessary to protect Freshasia Foods’ trade connections, their case on that clause would likely fail and therefore would unlikely be entitled to an injunction enforcing it at trial. The Court therefore declined to grant an interim injunction.
What does this mean?
Non-solicitation causes are likely to be enforceable more routinely than non-compete clauses, however, this case is an indication that a prohibition on potential customers, as opposed to actual customers, is unlikely to be held as enforceable.
Ultimately, such clauses in employment contracts are only likely to be enforceable if the employer can show that:
- It has a legitimate proprietary interest that it is appropriate to protect
- The protection sought is no more than is reasonable having regard to the interests of the parties and the public interest
How we can help
If you’d like some initial, independent legal advice, our team of employment solicitors are on hand to help. To speak to an employment lawyer with experience in restrictive covenants, call us on 0117 905 9763 or complete our online enquiry form.