Herbert Morris Ltd v Saxelby [1916] 1 AC 688
Court: House of Lords. Judgment: 8 February 1916.
An employer could protect its legitimate business interests, but could not use a restrictive covenant simply to prevent a former employee from applying his own acquired skills in competition with it.
Facts
Herbert Morris Ltd manufactured lifting machinery. Saxelby joined the business as a junior draughtsman after leaving school and developed specialist engineering skills through his work there.
His 1911 employment agreement contained two relevant promises. Clause 6 restricted disclosure of information concerning the company’s affairs and customers. Clause 7 prohibited him, for seven years after leaving, from involvement in the sale or manufacture of specified lifting machinery throughout Great Britain and Ireland. It covered direct or indirect involvement, including work for another business.
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Saxelby unsuccessfully sought other engineering work, worked for a time in France, and then joined Vaughan & Sons, a competing manufacturer in Manchester. Herbert Morris sought injunctions. Its separate claim concerning disclosure of confidential information was abandoned; no breach or threatened breach had been established.
Sargant J dismissed the action, and the Court of Appeal upheld that decision. The employer appealed to the House of Lords.
Issue
Was the non-competition covenant reasonably necessary to protect the employer’s interests, or did it unjustifiably prevent Saxelby from earning a living using his own skill and experience?
Decision and reasoning
The House unanimously dismissed the appeal with costs. The restraint was unenforceable.
The speeches applied the requirement that a restraint be reasonable in relation to the parties and the public. Before considering its breadth, it was necessary to identify what interest the employer was entitled to protect. Protection against misuse of trade secrets or customer connections differed from protection against competition alone.
Lord Atkinson found no real danger that Saxelby could use personal influence over customers to divert their business. Although the company’s detailed technical documents were confidential, their contents were too extensive to carry away in his memory. The general understanding of organisation and business methods gained through his experience was part of his own knowledge.
Lord Parker similarly rejected the attempt to justify the restriction by reference to trade secrets or customer connections. The employer’s real concern was that Saxelby’s developed skill would make a rival more effective. That did not give it a proprietary right over his abilities.
The House distinguished employment from the sale of a business. A buyer may need a reasonable restraint on the seller to obtain the goodwill it has purchased. An employer does not purchase an employee’s personal skill in that way.
The seven-year restriction across the whole country also prevented Saxelby from using the particular engineering experience on which his livelihood depended. Lord Shaw described its effect as requiring him to “become an exile” if he sought employment elsewhere. He stressed that the public interest concerned both freedom of contract and freedom of trade. This covenant exceeded what the employer could justify protecting.
