Drafting Error in Non-Compete Clause Corrected by High Court

3 mins

Posted on 02 Apr 2014

A drafting error which resulted in an employer having no protection against an employee working in competition has been corrected by the High Court.

In Prophet plc v Huggett, H was a sales manager for a software developer and supplier for the fresh produce industry. He was responsible for developing new business and account relationship management. His employment contract contained a 12 month non-compete covenant precluding him from being concerned in any competing business. However, this was limited to where his involvement was in connection with any products in which he was involved whilst employed.

H resigned to work for a competitor and, after he refused to give an undertaking that he would not work for a competitor until the expiry of the 12 month restriction, the employer applied for an injunction.

The Court noted that the non-compete clause, read literally, offered no protection as no competitor would be selling Prophet’s products. It was clear that something had gone wrong in the drafting. In order to correct the error, the Court considered what a reasonable person would have understood the parties to have meant and decided that the probable intention of the parties could be achieved by adding the words “or similar thereto” to the end of the covenant. This was the minimum change necessary to produce a commercially sensible result and was reinforced by the fact that similar wording had been included in the non-solicitation and non-dealing covenants.  

It is very unusual for courts to re-write post-termination restrictions in order to make them valid and the employer in this case can count itself lucky that the court felt able to give an interpretation which made business sense. The difference in this case seems to be that the court was not re-writing the provision because it was too widely drafted, but because it did not make business sense.  

Post-termination restrictions in employment contracts always need to be drafted carefully. They should be no wider than is necessary to protect the employer’s goodwill, trade connection, trade secrets or other confidential information and should be kept to as short a time period as possible. Although the court in this case upheld a 12 month non-compete provision, this was most likely due to the fact that customers renewed their contracts annually and knowledge of the renewal date could be of assistance to the competitor. In the majority of cases a 12 month non-compete clause is likely to be unenforceable. 

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