Many employers don’t consider what issues might arise if they
get the wording of a restrictive covenant wrong. The following case illustrates
the potential pitfalls, not to mention the cost of having to take a restrictive
covenant case to court, to protect your business interests.
Prophet Plc v Huggett
In this particular case the restrictive covenant had been
incorrectly drafted by the employer which meant it did not give them the
commercial protection it was supposed to. Prophet sells a suite of software
products in the fresh produce sector. Mr Huggett was employed as a sales
manager with a three month notice period. In December 2013 Mr Huggett accepted
a job offer from a competitor called K3 who sold a similar product.
A clause in Mr Huggett’s contract was intended to prevent
him from working or being engaged in any competing business for a set period of
time. An error in the wording of the covenant meant that it only prevented Mr
Huggett from selling Prophet products; as Prophets products were unique to
Prophet, it didn’t offer the commercial protection it was intended to.
The Court allowed Prophet to add a small change to the
covenant preventing Mr Huggett from selling “similar products”. Having made
this change, the covenant became enforceable and the High Court granted an
injunction preventing Mr Huggett from working for K3 or any other software
supplier in the sector until his covenant expired in Jan 2015.
Although unusual, the court can interpret a restrictive
covenant so that a drafting error does not make it unenforceable. It is still a
costly and complicated matter to take it to court to ensure the interests of a
business are protected.
Restrictive covenants can be tricky to draft correctly and very
problematic if a mistake is made, as a result issues with them are quite common.
ARAG’s commercial cover will pay the legal costs involved in resolving cases
like this one for commercial customers.
David Haynes
Head of Underwriting & Marketing
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