Chris Magrath looks at restrictive covenants in employment.

Chris Magrath is senior partner with Magrath & Co.

The recent case of D v M (reported 23 January 1996) has highlighted the importance of well drafted, enforceable restraint of trade clauses. Restrictive covenants which extend beyond the period of employment can be vital to the protection of the business of any employer or partnership.

Whether anti-competition, non-solicitation of clients or customers, non-solicitation of staff, or non-dealing cove-nants, each restraint must stand or fall alone. They will not be redrafted and made enforceable by the courts.

An employer must not be in breach of his or her contractual obligations as a wrongful dismissal by an employer renders a restrictive covenant unenforcable. An employee cannot be effectively restrained by a covenant which is expressed to apply upon termination "for whatever reason". Briggs v Oates (1990) ICR 473 determined that those words would be interpreted as "for whatever lawful reason". Despite this, over the past decade, employers have drafted draconian restrictive contracts containing phrases such as "for whatever reason" or "howsoever caused", believing, erroneously, that the wider the clause the more effective it will be.

In appropriate cases (when the employment contract still subsists) the courts will "blue pencil" part of a covenant, and enforce the rest, provided it goes no further than reasonable. Until recently it was unclear whether covenants drafted to apply upon termination "whether lawful or not" could be severed or would render the entire covenant void. D v M has now established that such phrases cannot be severed.

The provision in question was drafted to apply if the agreement was terminated "for any reason whatsoever". It was held, by Mr Justice Laws, that these words could not be regarded as separate and distinct from the restraints imposed, but rather they qualified the covenants by extending the circumstances in which they could be imposed. The words were considered to be a highly significant element in the contractual provision being made and therefore were not severable.

To avoid total invalidation of restrictive covenants it is important that employers are advised that there must be a balance between their legitimate interests and an individual's right to ply his trade. It is often difficult for employers to identify what interest genuinely requires protection and what does not.