Law Report: Court will not enforce unreasonable covenant: J A Mont (UK) Ltd v Mills Court of Appeal (Lord Justice Glidewell, Lord Justice Beldam and Lord Justice Simon Brown) 30 October 1992.

Where a restrictive covenant imposed by an employer on his ex- employee was manifestly too wide, and accordingly unenforceable as an unreasonable restraint of trade, the court as a matter of policy would not attempt to find within it, and enforce by injunction, some narrower and more reasonable restriction, more accurately targeted on those of the employer's interests that could legitimately be protected.

The Court of Appeal allowed an appeal by the defendant, James Mills, against the decision of Mr Justice Laws, on 16 September 1992, granting the plaintiffs, J A Mont (UK) Ltd, an interlocutory injunction restraining the defendant, until 28 February 1992 or further order, from working for a number of named companies in the paper tissue industry and from supplying paper tissue products for retail by any of a further number of named companies.

Michael Burton QC and Paul Lowenstein (Edge & Ellison) for the appellant; Christopher Carr QC and Philip Shepherd (Ashurst Morris Crisp) for the respondent.

LORD JUSTICE SIMON BROWN said the injunction was to prevent the defendant continuing his employment as joint managing director of F H Lee Ltd, a competitor of the plaintiffs, which he had begun on 22 June 1992.

The defendant, aged 43, had spent 20 years in the paper tissue industry. It was the only work he knew. In January 1991, the company of whom he had been sales and marketing director for the previous five years was amalgamated with the plaintiffs and his job disappeared.

In February 1992, he entered into a written severance agreement with them. He was paid the equivalent of a year's emoluments and released from any obligation to work for the plaintiffs for a year.

But he was required to submit to a restrictive condition that 'this total payment is made on condition that you do not join another company in the tissue industry within one year of leaving our employment'.

The defendant contended that the covenant was manifestly too wide and accordingly unenforceable as an unreasonable restraint of trade. It was too wide, not only geographically in that it operated worldwide, but also in that it restrained the defendant from working in any capacity whatsoever and, indeed, in any sector of the tissue industry.

The judge felt that the question whether the defendant might have used confidential information in his new job was a grave question to be tried, and granted an interlocutory injunction in the widest terms; but directed that the parties should co-operate in redrafting it so it only contained the more limited terms of restraint that could reasonable have been imposed by covenant.

The plaintiffs, while not seeking to uphold the judge's approach, nevertheless sought to uphold his order, on the principal ground that the covenant could and should be construed in such a manner as to be reasonable in its scope and thus enforceable. They relied on Haynes v Doman (1899) 2 Ch 13, Plowman & Son Ltd v Ash (1964) 1 WLR 568, Home Counties Dairies Ltd v Skilton (1970) 1 WLR 526 and, in particular, Littlewoods Organisation Ltd v Harris (1977) 1 WLR 1472.

But in the clearest contrast to all those cases, there was in the present case no attempt whatever to formulate the covenant so as to focus upon the particular restraint necessary to guard against the defendant's possible misuse of confidential information, the only legitimate target for imposing any restraint on his future employment.

There was no question of the present covenant suffering, in Sir Nathaniel Lindley's words in Haynes v Doman, 'a mere want of accuracy in expression'.

As a matter of policy, the court should not too urgently strive to find within restrictive covenants ex facie too wide, implicit limitations such as alone could justify their imposition.

The plaintiffs submitted next that, in the particular circumstances of this case, where unusually they had fully remunerated the defendant for the entire year of restraint, the court could do one of two things which would otherwise be impermissible, namely either (a) whittle down the scope of the covenant to grant a more limited form of injunctive relief; or (b) ignore the covenant as unenforceable, but nevertheless enjoin the defendant on the present terms by way of ancillary order so as to ensure that he would not breach his continuing duty of confidentiality.

But his Lordship rejected both arguments. Provident Financial Group v Hayward (1989) 3 All ER 298, on which the plaintiffs relied, emphasised rather than blurred the distinction between the position of employees after termination of their agreements, and those still subject to them and still employed, albeit on 'garden leave' (paid but not required to work).

The essence of the distinction was that because employees, by that very fact, owed a duty of good faith, the courts could, irrespective of the existence of any express contractual covenant, enjoin against its breach by preventing their employment by trade rivals. That was simply not the case once employment ended.

The duty of good faith arose out of the obligation of loyalty inevitably owed by an employee to his employer.

Once the employment relationship ceased, there was no continuing occasion for loyalty. All that was left was a residual duty of confidentiality in respect of the employer's trade secrets. That was enforceable by a covenant preventing the employee working for a rival. But that brought the wheel full circle: to be enforceable such a covenant must be reasonable and not too wide. Lord Justice Glidewell and Lord Justice Beldam concurred.