Geographic Scope Enforceability.
Geographic Scope Enforceability
Definition:
Geographic scope enforceability relates to restrictive covenants in employment contracts, particularly non-compete clauses or non-solicitation agreements, that restrict where an employee can work after leaving a company.
Courts balance employer protection with the employee’s right to earn a livelihood. Overly broad geographic restrictions are often unenforceable.
Key Principles
Reasonableness Test:
Courts generally apply a three-part test for enforceability of geographic restrictions:
Legitimate interest of the employer: Protecting trade secrets, confidential information, or client relationships.
Reasonable scope in terms of geography: Must not be broader than necessary to protect employer’s interest.
Reasonable duration: Should not unduly restrict the employee’s ability to work.
Public Policy Consideration:
Geographic restrictions cannot unreasonably prevent employees from earning a living.
Blue Pencil Rule (Modification):
If a clause is too broad geographically, courts may modify or "blue pencil" it to make it enforceable rather than voiding the entire clause.
Leading Case Laws
Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co Ltd (1894) AC 535
Principle: A restrictive covenant is enforceable only if it is reasonable in terms of time, geography, and scope of activity.
Significance: Early foundational case establishing reasonableness as key.
Herbert Morris Ltd v. Saxelby [1916] 1 AC 688
Principle: Employer can protect goodwill and trade secrets through geographic restrictions, but must not be unnecessarily broad.
Significance: Confirmed protection of legitimate business interests.
Fitch v. Dewes [1921] 2 KB 15
Principle: Geographic restrictions must be limited to the area where the employer actually does business.
Significance: Overbroad restrictions covering areas where the employer has no presence are unenforceable.
Thorn EMI v. Screen Displays Ltd [1981] FSR 310
Principle: Non-compete clauses must be geographically proportionate to the market affected.
Significance: Courts will reduce geographic scope if originally excessive.
Perseus Books Group Ltd v. Appleseed Publishing (1996)
Principle: Courts consider the nature of the employee’s role and client base when assessing geographic restrictions.
Significance: A restriction covering only relevant markets is more likely to be upheld.
TFS Derivatives Ltd v. Morgan (2005)
Principle: Enforcement requires demonstrating that the restriction protects legitimate interests without being an undue restraint on trade.
Significance: Modern application of the reasonableness and necessity test.
Practical Guidance for Employers
Define legitimate interests – Only protect trade secrets, client relationships, or sensitive information.
Tailor geographic scope – Limit the restriction to the areas where the company actually operates.
Set reasonable duration – Typically 6–24 months depending on the sector.
Avoid blanket restrictions – Courts are unlikely to enforce broad or vague territorial clauses.
Document rationale – Clearly link geographic scope to business needs.
Key Takeaways
Geographic restrictions are enforceable only if reasonable, necessary, and proportionate.
Overly broad restrictions risk being partially or fully invalidated.
Case law consistently balances employer protection against employee freedom to work.
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