Landmark case at Supreme Court will pave the way for restrictive covenants

The Supreme Court has begun the process of deciding a case that could see thousands of employment contracts become null and void over their use of restrictive covenants, also known as non-compete clauses. The Court is reviewing a previous Court of Appeal judgment that a six-month non-compete clause was unenforceable because it was too broad.

In the case, the Court of Appeal has found that the clause, which prevented employees from being “concerned or interested in any business carried on in competition” after termination, was unreasonable because the time frame was too wide and it would bar former employees from being a shareholder in a competing business.

The case centred around an executive recruitment and global management consultancy which has appealed the decision to the Supreme Court, where it is now being reconsidered.

Non-compete clauses are commonplace in contracts and if this landmark case is upheld, contracts that include such a provision may have to be rewritten. It has long been known that terms which seek to restrict an ex-employee’s actions after termination of employment will only be enforceable when they are reasonable. This is usually determined by the specific facts of the case, but employers who include terms which are too wide will affect the ability to enforce them. When constructing restrictive covenants, employers should be clear on what they want to restrict and avoid general terminology. We will bring further information on this case when it is decided.