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More unenforceable Restrictive Covenants

CEF Holdings Ltd v Mundey [2012]

In this case a number of employees from CEF holdings Ltd (CEF) left the company and joined Yesss, a business set up to compete with CEF. The High Court, in a lengthy and detailed judgment, held that in this case six-month covenants restraining solicitation of employees and competition were too wide to be enforceable. Of note was the fact that the employees were not restricted in relation to solicitation or acting for customers of CEF.

The covenant restraining solicitation of employees applied to non-solicitation of any of the 3,000 employees in the business and was not restricted to employees with whom the defendants had dealt. The non-compete covenant was held to be too wide and the drafting unclear. In reality a covenant simply restricting solicitation of customers would have been adequate protection for the employer.

In addition to the drafting, when contemplating the enforceability of these covenants, the court took into consideration the interesting fact that senior employees were not subject to the same covenants as the more junior employees. This undermined the employer’s contention that it had a legitimate interest to protect. If there was such an interest then senior employees should have also been subject to express restrictions. Further, the employees restricted by these covenants were on notice periods of only one week. The Court brought into question the importance of these employees to CEF, if they were so difficult to replace and solicitation was such a risk, then why were the notice periods so short? Needless to say, CEF’s claim was unsuccessful.

Key points:

  • This case is interesting for the various issues the Court took into account. However it is important to note that neither the short notice period nor the fact that more senior employees were not subject to the same level of restraint were determinative. Theses factors were persuasive due to the absence of a plausible explanation from the employer.
  • The case is a reminder that litigating restrictive covenants is a risky and tricky business. Employers need to address drafting covenants in a clear and coherent way and tailor them to the particular employee and their role whilst also ensuring the covenants accord with other aspects of the business.