A strong message to employers from the Court of Appeal this week to check your restrictive covenants, but this time to do it properly. None of that just casting an idle eye over the relevant page of your executive’s contracts – description of territory, tick; vague reference to competition, tick; not wholly fanciful restraint periods, tick, etc.
In Prophet Plc –v- Huggett the Court of Appeal was determining the enforceability of a non-competition covenant in Mr Huggett’s contract with Prophet. It engaged in a word-by-word analysis of what the covenant actually said and reached the conclusion that it prohibited Mr Huggett from working only for companies which dealt in the same products as he had handled at Prophet, i.e. Prophet’s products. Since only Prophet dealt in Prophet’s products, that meant that Mr Huggett was not actually prevented from working for any company except the one he had just left, being Prophet itself. This was clearly an absurd result, everyone agreed, but what should be done about it?
The Judge in the High Court had concluded rather boldly (excessively so, as it turned out) that he should “fix” the absurdity by amending the covenant clause to refer also to products “similar to” Prophet’s. That brought Mr Huggett’s new employer’s products within range and an injunction was granted accordingly.
On Mr Huggett’s appeal, the Court of Appeal took a much harder line. At a pinch, it said, the Courts can “blue-pencil” bits of covenants (i.e. delete them, like the war-time censor) if that would make them enforceable, but they cannot add new words to make effective a provision which otherwise is not.
The Court of Appeal said that where a contract clause like a covenant was ambiguous, there was some hope. If one reading of an ambiguous provision produced an absurd result and another didn’t, then the Court was entitled to apply the non-absurd construction and to “help” a covenant become enforceable in that way. The problem here, though, was that the offending clause was not ambiguous; it was just wrong, indeed unambiguously wrong. Because the covenant had been drafted by lawyers and no doubt with the care and consideration appropriate to such clauses (there is a touch of acid in the judgement, as you can tell), it had to be taken that the clause said what Prophet meant it to say. The fact that what Prophet meant it to say rendered it ineffective was their fault (or at least that of the drafting lawyers, for whom the judgement must make more than faintly uncomfortable reading).
So employers beware – read your covenants again soon with a nit-picking and hostile eye. If you find any linguistic gaps or nonsenses in them, take steps to amend them. Better still, given the emphasis which the Court of Appeal placed upon the Prophet covenants having been drafted by lawyers, get your legal advisers to do so. The message in Prophet is quite clear – you make your own bed in the drafting of your restrictive covenants, and it is you who will have to lie on it.