Non-competition restrictions in employment contracts

It is common to see employment contracts containing standard form non-compete clauses lasting for say 12 months after the employment ends – i.e. provisions aimed purely at preventing employees, after termination, from working for any competing business. Restrictions expressed in this general way are always likely to be unenforceable.

Court of Appeal case (Boydell v NZP Ltd)

This, however, does not mean that post-termination restrictions on competition will never be valid. This is illustrated by a recent Court of Appeal case (Boydell v NZP Ltd) in which an ex-employee challenged a Judge’s order, upholding a non-compete restriction and preventing him from joining a rival employer for 12 months.

The non-compete clause in question had been very carefully drafted. The ex-employee had worked for a company in the pharmaceutical industry in a highly specialised role. The clause detailed the matters with which his role was concerned – including, for example, the collection, processing or conversion of bile or other related animal products for pharmaceutical use. It also specified the names of particular companies which were to be regarded as competitors for the purposes of the clause.

The ex-employee had been responsible for the global sale and marketing of almost all bile-derived products. It was not in dispute that he had knowledge of trade secrets and commercially confidential information, including highly sensitive pricing information and details of his former employer’s business plans. The company which the ex-employee proposed to join was the main competitor of his former employer.

The Court of Appeal agreed that the wording of the non-compete clause was clear and that, on the facts of this case, the restriction on working for a rival company for 12 months was legitimate. The Court therefore rejected the ex-employee’s appeal.

As the case illustrates, it is not impossible to include an enforceable non-compete restriction in an employment contract. If an employer is serious about doing so, it should ideally specify the products or processes or areas of activity in which the employee will not be allowed to work for a rival employer. Some employers prefer to include the same standard form non-compete restriction in all their employment contracts on the basis that it may have a deterrent effect. There is no harm in doing this but equally no point in hoping that standardised wording will produce the desired outcome in the few cases where restricting competition really matters. 

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