12 month non-compete clause proves unenforceable

The High Court has ruled that a non-compete clause imposed on a relatively junior clothing salesman was not enforceable. It is relatively rare for disputes about restraint of trade to reach a final hearing, so this case provides a valuable insight into what an employer seeking to rely on such a clause will need to prove.

The 12 month non-compete restriction (which had no geographical restriction) had been imposed on Max Potter by Tom James (UK) Limited, a subsidiary of a US company, which sells clothing made in the US. It was part of a suite of restrictions which included non-solicitation and non-dealing clauses, also of 12 months duration.

The business focused on selling made to measure clothing, meeting customers at home or at their workplace. The court was required to assess whether the non-compete clause went “no further than is reasonably necessary to protect the employer's legitimate business interests”.

There were several reasons why the defendant company was not able prove that the non-compete clause met the legal test for enforceability including the following:

• Its business model meant that its staff knew their customers very well. It would therefore be relatively easy to police the non-solicitation clause, which ran for the same period.
• Mr Potter’s original contract included a six month non-compete clause, with a geographical limitation. This was increased to 12 months, and the limitation removed, a few years before his resignation. The company could not explain the reason for this change, which meant that he became subject to the same restrictions as much more senior staff.
• Even after he was required to sign up to tighter restrictions, his contractual notice period remained at one month. That was a notice period that you would expect to apply to junior staff, not staff who were entrusted with important confidential information.
• The employers were not able to make good their claim that sales tended to be on a yearly cycle, which could have reinforced the need for a year-long restrictive covenant.

Mr Potter’s undertakings to the court not to solicit or deal with his former employer’s customers with whom he had dealings remain in place until 12 months after the termination of employment -i.e. until May next year. However, he is now free to start work for a competitor.