Boydell v NZP Ltd and others – a useful reminder on enforceability of restrictive covenants

Boydell v NZP Ltd and others – a useful reminder on enforceability of restrictive covenants

25th May 2023

In brief

Dr Boydell worked as Head of Commercial - Speciality Products for NZP Ltd, a pharmaceutical business focusing on the development, production and sale of bile acid derivatives. His employment ended in January 2023, and he sought to take up a position at Zellbois GmbH (another pharmaceutical company) to head up their “bile acid business”.

Under his employment contract with NZP, Dr Boydell was subject to a non-competition clause, preventing him from working at a competitor for a 12-month period after his employment had ended. NZP sought an injunction against Dr Boydell to prevent him from working for Zellbois under this clause. The High Court (HC) held that although certain elements of the restriction were too restrictive and should be severed from the restriction, the remainder of the clause was valid and enforceable, and an interim injunction was granted preventing Dr Boydell from working for Zellbois for a 12-month period pending a trial which is listed to be heard between 19 and 29 June 2023.

The law

Under UK law, restrictive covenants (including non-competition clauses) are void as a restraint of trade, unless the employer has:

  1. a legitimate proprietary interest it is seeking to protect; and
  2. the protection goes no further than reasonably necessary to protect that interest.

Whether the restriction is appropriate depends on various factors including the relevant propriety interest of the employer (e.g. protecting confidential information or trade connections with customers/suppliers and maintaining the stability of the workforce), the extent of the restriction, the geographical scope, and the seniority of the employee. Generally, restrictive covenants are limited to a period between 3-12 months, with longer periods being reserved for more senior employees who could do more harm to an employer (e.g. due to the confidential nature of the information to which they will have been exposed during employment).

If a restriction goes further than necessary to protect the employer’s interests (i.e. it is too wide) then it will not be enforceable. Courts are not able to re-write restrictions to make them enforceable. However, courts can in certain circumstances sever (i.e. delete, sometimes called “blue-pencilling”) unenforceable restrictions from the contract, leaving only the enforceable terms.   

The case

In Boydell, the non-compete restriction prevented Dr Boydell from being involved in any activity for the benefit of any third party that carried out any business activity that would compete with the business activity of NZP or by any other company in NZP’s group. The clause set out a long list of specific activities relating to bile acid derivatives that were covered by the clause and provided a list of companies that would be considered as competitors by way of example.

An interim injunction was sought by NZP in the HC to prevent Dr Boydell from breaching this restriction pending a full trial. When looking at this clause, the HC considered that there were some elements in the restriction that were too wide, and so severed these sections from the clause. These severed sections included restrictions preventing Dr Boydell from working in activities relating to the supply chain and manufacturing of bile products and references to competing with group companies. The HC then granted the interim injunction in respect of the remaining sections of the clause.

Dr Boydell appealed to the CA. Dr Boydell argued that the clause was originally too wide to permit severance of the restriction and that by severing various elements of the restriction, the HC had effectively re-written the contract, which it was not permitted to do. He argued that the restriction was so wide as to prevent him from working for any pharmaceutical company and it was therefore unenforceable. In the alternative, Dr Boydell argued that even post-severance, the restriction was still too wide to be enforceable. He argued that by extending the non-compete to prohibit him from working for companies competing with those in NZP’s group, he would be prohibited from working for companies that were much less specialised than NZP (which the court commented could presumably include large chains such as Boots or Superdrug), therefore the restriction went much further than necessary.

The CA rejected Dr Boydell’s appeal. The CA held that construction of the non-compete to prevent Dr Boydell from working for Boots or Superdrug was “fantastical, extravagant, improbable or unlikely”. The CA referred to the fact that the clause listed specific types of activities relating to bile and thus it was clear that neither party had intended it to be that far reaching when the contract was signed. The CA held that there was no ground that the restriction was too wide to be severed.

Regarding Dr Boydell’s arguments that the clause was too wide to be enforceable post-severance, the CA held that decisions in this field are highly fact sensitive. The CA stated that a wide restriction may be hard to justify in a large public company with various differing areas of business activity. However, the CA said that it “was far less obvious where the company, as is the case with NZP, has a highly specialised or niche business” and that it may be simply “unrealistic” to think that Dr Boydell in this case could be somehow insulated from activities that compete with NZP.

Key takeaways

This case acts as a useful example of the considerations when drafting non-competition clauses and a review of the factors that courts will consider when being asked to enforce these restrictions.

It is important that post termination restrictions are tailored to the specific individual and business needs and are not so far reaching as to risk being unenforceable. We recommend that you seek advice on the drafting on your post-termination restrictive covenants and your confidentiality clauses in your contracts. The UK government has recently provided further colour on its proposed rule to limit non competes to a period of three months post termination, see our article here for more information.

Another important practical point is that the parties here were quick to respond to the potential threat of a breach of a post termination restriction. The employer acted quickly, which is an important factor in whether a court will grant an interim injunction, and Dr Boydell had not started work for the new employer when proceedings were issued (and had given an interim undertaking not to do so for the brief period until a hearing could take place).

If you would like any assistance with your post termination restrictions and confidentiality clauses, please contact your usual GQ|Littler laywer.