Court of Appeal upholds 12-month non-competition clause

The Court of Appeal has upheld a High Court decision to delete wording from a non-compete clause in order to make it enforceable.

Background 

Dr Boydell was employed as the Head of Commercial – Specialty Products for NZP Ltd up until his resignation. He then joined NZP’s direct competitor. As a former senior employee in a specialist area of NZP (which produced bile acid derivatives), Dr Boydell had several restrictions in his contract which limited what he could do after he had resigned from the Company. One of these restrictions was a prohibition on Dr Boydell being involved in any activities that would compete with the business with NZP (or any group companies).  

Concerned with Dr Boydell’s actions, NZP sought an injunction from the High Court to restrain his activities post-termination. NZP was successful in its injunction application and Dr Boydell was ordered to cease all activities in breach of his non-compete clause. As part of this order, the High Court “severed” (ie made some deletions) to reduce the scope of this clause. 

Dr Boydell appealed against the High Court’s decision. The core strand of his appeal related to the decision to sever his non-compete clause to remove reference to group companies. Dr Boydell argued that without this change the clause went so far as to prevent him from working in the general pharmaceutical industry. In addition, Dr Boydell suggested that the wording of the clause was too wide in any event. 

The Court of Appeal rejected Dr Boydell’s appeal. His main argument was deemed “fantastical” and not within the realms of the parties’ contemplation. His secondary argument was also defeated as he was in a highly specialised industry at NZP and it could be difficult to protect him from acting in competition at his new employer without such a clause. Therefore, the High Court had been entitled to sever the clause and the injunction was upheld.  

Practical points 

Conventional wisdom in the employment law sphere is that 12 month non-compete clauses will generally not be enforceable. The reason? These clauses are often viewed unfavourably by the Courts as they can affect an individual’s ability to earn an income for a significant time after the termination of their employment. 

However, this case has illustrated that employers seeking an injunction to enforce contractual restrictions on an employee’s ability to work for a competing business after termination may be more likely to be successful than previously thought in their pursuit of such an order.  

What was determinative in this case, and would likely be the same in other similar cases, is that Dr Boydell was a senior employee (responsible for global sales and marketing) in a highly specialised industry.  

Employers looking to ensure non-compete clauses are enforceable are advised to take particular care to ensure that any post-termination restrictions are reasonable and specific to the particular employee. That involves very careful drafting. Although the employers were successful in this litigation, it might have been avoided altogether if more care had been taken with the way the restrictions were worded.