The Supreme Court Sharpens the “Blue Pencil Test” for Restrictive Covenants

By: Barri Mendelsohn, Jenny Willcock, Cassandra Ditzel & Daniel Jones (China Law Insight)

In July 2019, the UK Supreme Court considered the enforceability of a restrictive covenant (in this case, a non-compete clause) in an employment contract.  Restrictive covenants are binding conditions typically contained in employment contracts which aim to protect the employer’s business from acts of the employee. As the Hong Kong Courts recently adopted the Beckett Test (see below for further information) this case is highly likely to also be adopted by the Hong Kong Courts in the future.

However, whilst they can be considered an unlawful restraint of trade, when they reasonably protect against a legitimate interest of the employer, the Supreme Court reconfirmed they will be enforced.

The Supreme Court also considered the application of the so-called “blue pencil test”, a judicial standard dating back to 1894 for deciding whether to invalidate the whole covenant (in this case) or just the offending words – leaving the remaining words in the covenant intact…

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