Greer v Sketchley Ltd

A post-termination restraint imposed on an employee must be no wider than reasonably necessary to protect the employer’s legitimate business interests. An employer may protect trade secrets and confidential information, but cannot restrain the employee’s use of personal skill and experience or impose a blanket prohibition extending beyond its operating area. Speculative future expansion cannot justify a United Kingdom-wide covenant where the employer operates only in limited regions. The court will not rewrite an overbroad covenant by adding a “competing” limitation or other words needed to make it reasonable. Littlewoods Organisation Ltd v Harris (1977) 1 WLR 1472 was distinguished as a special case concerning a specified competitor.

Mr Greer, a senior executive of Sketchley Ltd, sought a declaration that a 12-month covenant preventing him from engaging in similar dry-cleaning business anywhere in the United Kingdom was invalid. Sketchleys counterclaimed for an injunction preventing him from joining Johnsons, a competing dry-cleaning business.

Mr Justice Fox, sitting in the Chancery Division, refused the injunction and declared the covenant invalid. Sketchleys appealed. The central issues were whether the geographical scope was reasonable, whether the covenant could be construed by adding a limitation to competing business, and whether it protected identifiable confidential information.

1. Disposition. The Court of Appeal unanimously dismissed Sketchleys’ appeal, with costs. It upheld Mr Justice Fox’s declaration that the restrictive covenant was invalid.
2. Applicable principle. The Master of the Rolls, Lord Denning, delivered the leading judgment and Lord Justice Shaw agreed. A restraint of trade between employer and employee must be no wider than reasonably necessary to protect the employer’s legitimate business interests. An employer may protect trade secrets, confidential information, customer connections and other legitimate interests. It cannot prevent an employee from using the employee’s own skill and experience.
3. Geographical scope. The covenant covered every part of the United Kingdom, although Sketchleys operated only in limited areas of England and Wales. The essential defect was therefore geographical overbreadth. Possible future expansion into areas where Sketchleys did not operate was too speculative and vague to justify the restraint. The areas for which protection could reasonably be stipulated were, at most, the areas of the employer’s activities.
4. Construction. The court rejected the suggestion that it could insert the word “competing” into the covenant. Lord Denning and Lord Justice Shaw considered that doing so, and further limiting the covenant to competitors existing when employment ended, would distort the plain language. Littlewoods Organisation Ltd v Harris (1977) 1 WLR 1472 concerned a specified competitor and did not assist on this geographical restraint. Lord Justice Waller said that, absent the geographical defect, he might have construed “similar” as referring to competition, but the area was independently fatal.
5. Confidential information. General organisation and methods of business were not sufficient protection for such a covenant. Particular information, such as planned shop openings or closures and promotional material, might be protected. The court did not need finally to determine the wider issue of confidential information because the covenant was invalid on geographical grounds. The question of an injunction therefore did not arise.

• Court of Appeal (Civil Division): dismissed Sketchleys’ appeal with costs and upheld the declaration that the covenant was invalid.
• High Court of Justice, Chancery Division: Mr Justice Fox refused an injunction and declared the covenant invalid in January 1978.