Employer’s Covenant Drafting Error Could Not be Corrected By Court
The High Court had been wrong to correct a drafting error in a non-compete clause by adding words so it made commercial sense.
In Prophet PLC v Huggett, H’s employment contract contained a 12 month non-compete covenant precluding him from being involved 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 by Prophet.
H resigned to work for a direct competitor. His employer sought an injunction to enforce the non-compete covenant.
The High Court noted that the non-compete clause, read literally, offered no protection as no competitor would be selling Prophet’s products. As something had clearly gone wrong in the drafting, it corrected the error by adding the words “or similar thereto” to the end of the covenant. This it considered to be the minimum change necessary to produce a commercially sensible result. The High Court held that the covenant was enforceable and granted the injunction.
H appealed and the Court of Appeal upheld the appeal. In its view, the meaning of the covenant was clear. H was only precluded from being concerned with Prophet’s products. Since these were not provided by anyone else, H’s proposed activities for the competitor did not breach the covenant. The High Court had not been entitled to add words to the covenant so it made commercial sense.
This was not a case where the clause was ambiguous, enabling the Court to interpret it so as to give a commercially sensible solution. The clause was clear and unambiguous. It reflected exactly what its draftsman intended – it was just that the draftsman did not think through the concept underlying the words used and the extent to which the restriction would be likely to achieve any practical effect.
The High Court’s willingness to add words to the covenant so it made commercial sense was surprising. The Court of Appeal’s decision indicates that the High Court went too far. Whilst a court is able to delete words from a covenant which is too wide, if doing so narrows its application so as to make it enforceable, courts cannot rewrite a covenant or add words in order to make it enforceable.
This case reinforces the message that post-termination restrictions in employment contracts always need to be drafted carefully and addressed specifically to the employer’s business interrests. 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.
If you would like us to review of your employment contracts in general or your restrictive covenants in particular, please contact your usual Doyle Clayton adviser or email firstname.lastname@example.org.
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