Can a court rewrite a non-compete restriction in favour of an employer?

JonathanGolden

The answer should be ‘No’, but in the case of Prophet v Huggett, the court did exactly that.

This is a case where the enforceability of a non-competition restriction was challenged because of a mistake in the drafting.  The employer produced its own bespoke software and the restriction stopped the employee from working with a competitor “in connection with any products in, or on, which he/she was involved whilst employed”.   As no competitor could sell the employer’s own software, the non-compete clause made no sense, and the employee argued, was unenforceable.

Normally the case would fail at that point, because of two well known principles:

  • a court cannot rewrite a covenant to make it enforceable because it is too broad, and
  • if there are two alternative readings of a clause, the court should use the reading of the clause which would be more enforceable.

In this case the court agreed that the clause made no sense, but felt it would do if it added the words “or similar thereto” to the restriction.  The judge argued that the court is able to read a clause with “business common sense” in preference to a strict or literal interpretation.  In his view, it was clear on the face of the contract what had been intended, and it was a simple drafting error which could be remedied.  This was not a rewriting of a clause which was too broad or had a different possible reading, it was just wrong.

There are a number of other features of this case, including bad behaviour on both sides, which remarkably the court was prepared to forgive when granting an injunction on the reworded clause.  The normal principle is that a party (here the employer), looking for an injunction should “come to equity with clean hands”.  In other words the court would not normally step in to assist a party who has not behaved well.  However, the employee had behaved far worse, and the court had no sympathy for him.

The case highlights that courts are increasingly prepared to enforce a restriction which stops an employee joining a competitor at all when it believes that confidential information and client contacts cannot be adequately protected by non-solicitation and non-dealing clauses.

This is a case decided by a Deputy High Court Judge which might have been appealed and is fact- sensitive, and should not be relied upon by employers who behave badly toward an employee and don’t have effective restrictions in their contracts. That said, it demonstrates two things:

  • If a genuine and obvious drafting mistake is made, a court can step in and give the clause commercial sense by adding words, as long as the other rules of interpretation are still adhered to.  This is rare.
  • Courts recognise that often the only way in which a company can protect itself is by keeping departing employees out of its markets altogether through a non-compete restriction for up to a year.

Prophet PLC v Huggett (11 March 2014) – http://www.bailii.org/ew/cases/EWHC/Ch/2014/615.html

For further background information on this topic, see our briefing note on Restrictive Covenants and Garden Leave – http://goldenleaver.co.uk/wp-content/uploads/Restrictive-Covenants-and-Garden-Leave-Briefing.pdf