In the recent case of Boydell v NZP Ltd and others [2023] EWCA Civ 373 the Court of Appeal considered two key issues in relation to a non-compete clause: First with regard to severance: whether the High Court’s decision to sever words from a non-compete clause went beyond the principles set out by the Supreme Court in Tillman v Egon Zehnder Ltd [2019] UKSC 32 (the decision in that case covered in our 2019 post here); and second looking at the time before bringing the claim, whether the claimant should be permitted to appeal against the High Court’s decision that the claimant had not unduly delayed in issuing proceedings.
Post termination restrictive covenants are only enforceable in the UK to the extent that they protect a legitimate business interest and go no further than is necessary to protect that interest. If a restrictive covenant is drafted too widely then there is a risk that it will be considered to be unenforceable. Case law has established that a court can “blue pencil” a restriction, i.e. remove words from a non-compete, but only to the extent that in removing such words there is no overall change in the effect of the post termination restriction.
In this case, the employee, Dr Boydell, worked as Head of Commercial – Specialty Products for NZP Ltd (NZP). NZP’s business was in a niche area of the pharmaceutical industry, developing, producing and selling bile acid derivates for sale to pharmaceutical companies for them to use in their products. In October 2022 Dr Boydell resigned and stated his intention to join one of NZP’s competitors to head their bile acid business. In late January 2023 NZP issued its claim against Dr Boydell, seeking to enforce two sets of restrictive covenants to prevent Dr Boydell from working for the competitor.
The High Court refused to enforce one set of restrictive covenants (in a shareholders’ agreement) but granted an interim injunction enforcing the other set (in Dr Boydell’s employment contract). In doing so, the High Court severed part of a 12-month non-compete clause which, in broad terms, prevented Dr Boydell from being involved in any activity for the benefit of any third party that carried out any business which would compete with the business of NZP or any other company in the group. The High Court also found that the claimant had not unduly delayed in issuing proceedings.
Dr Boydell appealed to the Court of Appeal, arguing that the severance carried out by the High Court significantly changed the nature of the restraint, contrary to the principles in Tillman. He also sought permission to appeal on the question of NZP’s alleged delay in issuing proceedings.
The Court of Appeal found that:
(a) Severance – on the widest construction of the non-compete clause as drafted Dr Boydell would be prohibited for 12 months from working for any company which sells pharmaceutical products including nasal sprays. This would include large chains such as Boots or Superdrug. The Court of Appeal found that this construction of the clause fell within the principle in Home Counties Dairies v Skilton [1970] 1 WLR 526 that ‘if a clause is valid in all ordinary circumstances which can have been contemplated by the parties, it is equally valid, notwithstanding that it might cover circumstances which are so “extravagant”, “fantastical”, “unlikely or improbable” that they must have been entirely outside the contemplation of the parties.’ The non-compete clause in this case was clearly focused on the specialist activities of NZP which were listed in the clause and it was therefore reasonable for the High Court to grant an injunction on the basis of the more limited, severed, non-compete clause.
(b) Delay – permission to appeal on the question of delay should be refused. Dr Boydell had relied on Planon Ltd v Gilligan [2022] EWCA Civ 642 in which the application for an injunction had not been heard until seven weeks after the employee had started with the new employer. However the Court of Appeal held that the circumstances in the present case were distinguishable from those in Planon. In Planon the employee had been in post with his new employer throughout the period leading up to the application and it was thought any trade secrets would surely have been lost. In the present case the parties were in early dialogue through correspondence in a civilised and business-like fashion and there were genuine efforts on both sides to see if without prejudice communications might yield an accommodation and thereby avoid litigation. Further Dr Boydell had not yet started with his new employer.
Although this case does provide some comfort for employers to allow for severance in a non-compete clause, such cases are very fact specific and should be treated with caution. Employers should ensure that any post termination restrictions are drafted as narrowly as possible to ensure the best chance of any restriction being considered enforceable. It should also be noted that the government is consulting on measures to reform post-termination non-compete clauses, including payment for such clauses, or banning them altogether. The consultation commenced in late 2020, and closed in February 2021, however it is not clear when the government will report on its conclusions.
