Enforcing Restrictive Covenants

In Norbrook Laboratories (GB) Limited v (1) Adair (2) Pfizer Limited, the High Court has considered the enforceability of restrictive covenants against a departing sales manager of a pharmaceutical company.

The Facts

Ms Adair worked as a sales manager for Norbrook and her contract of employment contained restrictive covenants including a non-competition restriction and a non-solicitation/non-dealing restriction. At the end of 2007, she was offered a job with Pfizer and resigned from Norbrook.

Norbrook applied injunction to enforce the restrictive covenants in her contract. The High Court held that the non-competition covenant was too wide and therefore unenforceable but that the non-solicitation/non-dealing clause was enforceable.

The non-competition covenant was a one year post-termination restriction on working in a business whose products competed with those of Norbrook. This concerned in the last five years of Ms Adair’s employment. The Court found that Ms Adair had access to confidential information such as customer lists, customer discounts and pricing and sales figures. Therefore, it was reasonable for a non-competition restriction not to be confined to restraining her from working for a competitor in the same capacity. This is because there was a real risk that confidential information may be revealed irrespective of the capacity in which she worked for Pfizer. The Court also held that the one year period of the restriction was reasonable in order to protect Norbrook's customer connection.

However, the Court considered the scope of the businesses from which Ms Adair would be precluded from working was too wide.  The reference to competing products with which she was "concerned" in the last five years of her employment could mean anything from "concerned to a material extent" or products with which she had a "tenuous connection". In any event, the Court found that most of the sales and sales-related information had a limited shelf life, so a restriction by reference to products with which the employee was involved in the last five years was unreasonably wide.

The non-solicitation/non-dealing restriction applied to customers and prospective customers within the last two years of Ms Adair's employment. The Court found that a restriction of one year was reasonable and was prepared to uphold the covenant, except in relation to prospective customers.  The Court considered it unreasonable to restrain Miss Adair from dealing with potential customers who may already be customers of the new employer.

With respect to both restrictions, Ms Adair claimed that the level of her salary,  her length of service and seniority were all relevant to the reasonableness of the restrictive covenants. The Court disagreed and said that there was no basis for giving these factors any particular significance in determining the reasonableness of the restrictions. The main reason was the fact that she had access to confidential information and was in a position to establish customer connections.

Remarks

The general principle is that restraint of trade is illegal. However, the courts have to carry out a balancing act such that employer’s interests are also needed to be protected. The decision in this case gives an insight into the relevant factors that effect the enforceability of (a) non-competition covenants and (b) non-solicitation covenants.