Court of Appeal rules training repayment clause unenforceable
The Court of Appeal has provided important guidance on the enforceability of training repayment clauses in employment contracts.
Read More
The High Court rejects 10-year non-compete clause, ruling it overly broad and unenforceable. A key lesson for employers on reasonable restrictive covenants.
28 August 2024
Case Study
The High Court has recently dismissed an application made by Literacy Capital Plc (the claimant) for an interim injunction against Vanessa Jane Webb (the defendant). The purpose of the injunction was to stop the defendant from competing with the claimant’s subsidiaries.
The claimant, through its subsidiaries, acquired the defendant’s 25% shareholding in Mountain Healthcare Ltd. In 2021, the defendant resigned from Mountain Healthcare Ltd, renegotiated the share sale and entered into a new investment agreement.
Restrictive covenants in the investment agreement stipulated that the defendant could not compete with any business of the claimant’s subsidiaries within a) 12 months of her ceasing to be a director/employee of the subsidiaries, and b) the period starting with the date she became a loan note holder and ending 12 months after she stops being a loan note holder. This period of time could last a maximum of 10 years.
The claimant’s application for an interim injunction relied on part b of the restrictive covenants.
Case Study
The Court ruled that the claimant failed to provide any evidence to justify the need for a 10-year restrictive covenant. It referred to the 12-month restrictive covenant (part a) would have been reasonable because it arose as a result of the defendant’s status as founding director.
In addition, the Court ruled that the claimant failed to provide any evidence to justify the nationwide scope of the 10-year restrictive covenant. The claimant’s assertion that it had nationwide ambition was not sufficient to justify the covenant.
On the question of whether the restrictive covenants were void, the Court held that the scope went far beyond the core of Mountain Healthcare Ltd’s services and, therefore, reached far beyond any legitimate protectable interest. In particular, the 10-year duration went far past the duration allowed in ex-employee cases and in sale of business cases.
The Court continued that the covenants could not be severed in any simple or clean way to make them legally enforceable. There was no way of interpreting them which resolved their overly long duration or their overly wide geographical scope.
As a result, the restrictive covenants were void and unenforceable.
This case should serve as a cautionary tale for employers, business owners and their advisers. Even where the restrictive covenant is negotiated as part of a commercial agreement, the Court will still apply restraint of trade law if it thinks the restrictive covenants are connected with the individual’s status as an employee.
In addition, there was no way for the Court to sever the covenants so that they might be enforceable. The Court could not, for example, substitute a time period which it felt would have been reasonable in the circumstances. Therefore, in this scenario, the claimant would have been better protected by agreeing to more realistic and less ambitious restrictive covenants when it negotiated the commercial agreements. The alternative, as it has been found out, is no protection at all.
Contact Us
For more information and guidance on restrictive covenants, please call us on 01332 226 126 or send us an enquiry by completing the form below.
Related Services
Knowledge
The Court of Appeal has provided important guidance on the enforceability of training repayment clauses in employment contracts.
Read MoreThe Employment Appeal Tribunal has clarified when employers may be deemed to have knowledge of an employee's disability.
Read MoreDownload our probationary period resource pack to help prepare for the Employment Rights Act changes from January 2027.
Read moreAn employer's failure to involve an employee in an investigation led to findings of disability discrimination and compensation.
Read MoreThe EAT highlights the limits of protected conversations and the risks employers face when discussions are handled incorrectly.
Read MoreEmployer ordered to pay over £264,000 after a reference referring to an ongoing dispute was found to amount to victimisation.
Read MoreDownload expert guidance on UK trade union reforms and prepare your organisation for Employment Rights Act changes.
Read moreEAT confirms endometriosis can be a disability and examines reasonable adjustments, dismissal risks and performance management issues for employers.
Read MoreEAT confirms withdrawing a conditional job offer can breach contract with employers understanding when an offer is binding and notice applies.
Read MoreEAT confirms leaving transferred staff on inferior terms can amount to indirect discrimination, even under TUPE.
Read MoreEAT confirms dismissal must be based on the employer’s actual reason, not a substitute. Incorrect reasoning can make dismissal unfair.
Read MoreEAT finds dismissal unfair in Milrine v DHL (2026). Key lessons for employers on appeal processes and reducing tribunal risk.
Read MoreScroll to next section
Scroll back to the top