Non-competes are again at the forefront of the debate following the US President’s recent Executive Order, interpreted by many as intended to make contractual non-compete clauses unlawful across all US States. You can find my article here on what this dramatic move could mean for workers, the global economy and the future of the non-compete in Britain.
As we look forward, it is fascinating (I agree, everything is relative) to cast our minds back to history to see where it all began and how was got to where we are today. The chequered history of the non-compete in English law takes us from medieval wool dyers, through early modern bakers to Victorian arms dealers and beyond.
So, to start at the very beginning (or thereabouts)…
The origin myth
“L’obligation est voide ce que le condition est encounter common ley et per Dieu se le plaintiff fuit icy il irra al prison tanque il ust fait fine au Roy.” [1]
I have no doubt that anyone reading this blog will recognise at once – all, I assume, being learned in Year Books of the 15th century and the Old French spoken in English courts of the time – that the above is a surviving record from a 1414 judgment of Henry V’s courts. “Fascinating stuff”, I hear you say.
The case has come down to us as John Dyer’s Case, seen by many as the archetypical statement of what was the English common law’s position on agreements which purported to restrain the trades of Englishmen (and Englishwomen, though we can fairly assume this was more technical than real).
The record of the case is patchy. Mr Dyer (whose trade may or may not have been that of wool dyer, hence his imaginative name) had been apprentice to his master, the unnamed and (as it turned out) no-show plaintiff in the case. Dyer had apparently promised not to exercise his trade for a period of 6 months in the same town as his former master. The promise was in the form of a bond, an onerous formal promise attaching consequences if broken. His former master sued him, likely in the Court of Common Pleas, alleging that Dyer had broken his bond. Whilst Dyer claimed not to have done what he was accused of, the court appears to have suggested that his better defence would have been demurring at law since the condition of the bond (i.e. promising not to trade in the same town for a period of time) was, the Judges said, not known to the laws of England.
It will never be known whether Hull J was having a middling sort of Middle Age afternoon or whether the mere idea of the plaintiff’s brazen attempt to restrain poor John Dyer’s trade by enforcing a non-compete was such an anathema to the court and the common law as to raise the ire of the prickly Judge. Whatever the true reason, history seems to have gone with the latter explanation.
For centuries, legal commentators have taken Hull J’s declaration as a clear indication that the common law in 1414 held a dim view of the concept of non-compete agreements – “And, by God, if the plaintiff was here he should go to prison until he paid a fine to the King”[2] fumed Hull J, doubtless over the haphazard din of the newly-expanded Westminster Hall.[3]
Unfortunately, as with so much of history, the later romantic view of earlier ages of English chivalry and fair play are better suited to Walter Scott novels than to the history books. It will shock you, dear reader, to hear that the English law may not have been as squarely on the side of the beleaguered tradesman as later generations of lawyers liked to argue.
For example, in a near-contemporaneous case – the Archbishop of York’s Case – the law busied itself in upholding the principle that no wool dyer could work in the manor of Ripon without the Archbishop’s permission. Seemingly it was outrageous that Mr Dyer should be prevented, even with his prior signed consent, from plying his trade in one small town for 6 months but it was acceptable that all wool dyers could be prevented from plying theirs in Ripon forever if His Grace so desired. Try as we might, it is hard to reconcile the two approaches or to conclude that the English common law was concerned with any overarching principle aimed at protecting free trade or the humble craftsman.
Commentators have argued that Dyer’s Case was much less to do with an abhorrence against restraining Mr Dyer’s trade and much more to do with the courts’ general objection at that time to the bond as a manner of enforcing agreements. It is said, since Dyer was under bond – as distinct from assumpsit (in basic terms, a precursor to the contract) – the Judges were very keen to find in his favour. Tellingly, much later in 1685 the Court of Exchequer[4] commented that in all prior cases dealing with restraint of trade where there had been a bond, the court struck out the agreement. Conversely, in all previous cases where the restraint had been agreed by assumpsit, the court upheld the restraint.
Much later again, Lord Macclesfield seemed to share this view of the role the bond had played in the outcome of Dyer’s Case when, in Mitchel v Reynolds[5], he conjured a hypothetical Greek drama of imagined woe. The players were, on the one side, a potential “poor weaver…in a fit of passion and concern exclaim[s] against his trade and declare that he would not follow it anymore” and, on the other, “some designing fellow” who “works [said poor weaver] up to such a pitch as, for a trifling matter, to give a bond not to work at it again”. Then follows cries of his starving children, forcing the wretched man to return to his trade only to be sued on the bond. His Lordship concludes: “I must own, I think this such a piece of villainy, as is hard to find a name for”. Quite so. Though, in Macclesfield we find a man whose career ended in impeachment and imprisonment in the Tower for corruption so the discerning reader might be given some indulgence to doubt His Lordship’s judgment of what constitutes knavery…
Whatever the motivation for why John Dyer got to set-up in his small town in competition with the man who had trained him (some gratitude), what is clear is that lawyers and scholars later looked back, rightly or wrongly, on Dyer’s Case as a clear and good statement of the common law’s negative attitude to the non-compete.
Such an assumption shouldn’t be surprising. In practical terms, to restrain a man’s trade in medieval England could be ruinous. We must imagine a world where physical movement between towns or even from parish to parish was difficult; a country where the welfare state was little more than a postcode lottery of benevolent religious orders and munificent burgesses. In such a world, restraining anyone from their work (even locally or for a short period) was no small matter. Most importantly, training for a trade took about 7 years of apprenticeship only then to be tightly regulated by the mighty Guilds which governed their practice. For example, a man could practise only the trade in which he was trained and no other. To boot, the Guilds then passed protectionist byelaws preventing ‘strangers’ from moving between towns to compete with other boroughs’ tradesmen. Some commentators have even seen a correlation between the decline of the power of the Guilds in the 17th century and the law’s increased willingness to entertain the non-compete.
Against that context, Hull J’s tone of indignation rings true and justifiable.
The 18th century – Mitchel v Reynolds: battle of the bakers
Our tale jumps forward to the 18th century and the titanic[6] Chief Justice of the King’s Bench, Lord Macclesfield (Sir Thomas Parker, as he then was). In Mitchel v Reynolds (between the Acts of Greek tragedy involving poor weavers and designing fellows), Lord Macclesfield gives us perhaps the first attempt to bring together the threads of how the common law viewed the non-compete.
As Letwin put it[7], from then on the law on the subject became more and more complex since each case involved two contrary principles: on the one hand, the court’s instinct was to uphold an agreement, freely made between parties, where one reasonable person has disposed of their property by contract. Why should the courts tell them they were mistaken to do so? On the other, the instinct to invalidate an agreement because it either deprived the worker of their livelihood or (probably the more urgent motivation) because it deprived society at large of competition.
The constant tug between these opposing principles brings the law closer to where we are today. The conclusion appeared to be ‘not all restraints are good and not all are bad’.
In Mitchel, a 1711 case involving a battle of competing bakers, Lord Macclesfield produced what looked like a broad statement of principle. Restraint of trade can be good only if the restraint is ‘particular’ (meaning, in area) rather than ‘general’, and the contract “appears to be made upon a good and adequate consideration, so as to make it a proper and useful contract”. He summed up in short order the dual motivations of (1) detriment to the party personally and (2) detriment to society:
“The true reasons of the distinction upon which the judgments in these cases of voluntary restraints are founded are, 1st, the mischief which may arise from them, 1st, to the party, by the loss of his livelihood, and the subsistence of his family; 2dly, to the public, by depriving it of an useful member”
But what, I hear you cry, does ‘particular’ or ‘general’ mean? What is ‘good and adequate consideration’? And what does ‘reasonable’ mean? All good questions, and ones which caused particular difficulty over the next century and a half.
The 19th century – Nordenfelt: bringing in the big guns against the little guy?
In 1894, Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co.[8] attempted to settle the matter.
As you will no doubt have experienced from your own practices, the lawyer’s perennial problem is often how to choose which side to root for in cases involving arms dealers. In one corner, the large international arms dealer, Maxim Nordenfelt Guns and Ammunition aka ‘Goliath’. In the other, ‘David’, the little-guy arms dealer, just asking for a break to go it alone and supply his 4-barrelled anti-torpedo gun to the Empire and beyond.
Mr Thorsten Nordenfelt (if arms racketeering hadn’t worked out, at least he had a name destined for greatness in some form or other) had signed a 25-year, worldwide non-compete with the company. It should be said in the interests of completeness that the ‘David’ of this story was in a rather better position than many. He was in fact the former founder of the company who had sold it to Maxim for about £17million in today’s money (1,660 years’ pay for a skilled tradesman in 1894). It could be argued he had been well compensated for the restraint.
Lord Macnaghten’s judgment in that case was seen as the authoritative statement of the English common law on restraint of trade. It recognised that non-compete clauses were prima facie void at common law, however, they could be valid if certain conditions were met. These were said to be three-fold: (1) if it seeks to protect a legitimate interest and (2) if the terms are subjectively reasonable in scope and (3) if the terms are reasonable in respect of the public interest.
The readiness of Their Lordships to find that the restraint met these conditions and was therefore valid shows how the common law by this date was little concerned with free trade or competition and more concerned with the principles of freedom of contract:
“The public have an interest in every person’s carrying on his trade freely: so has the individual. All interference with individual liberty of action in trading, and all restraints of trade of themselves, if there is nothing more, are contrary to public policy, and therefore void. That is the general rule. But there are exceptions: restraints of trade and interference with individual liberty of action may be justified by the special circumstances of a particular case. It is a sufficient justification, and indeed it is the only justification, if the restriction is reasonable – reasonable, that is, in reference to the interests of the parties concerned and reasonable in reference to the interests of the public, so framed and so guarded as to afford adequate protection to the party in whose favour it is imposed, while at the same time it is in no way injurious to the public.”‘
Taking our 21st century sensibilities as a starting point, then coating them with a generous helping of wishful thinking, we might venture that secretly Their Lordships felt the world would be a better place with fewer rather than more arms dealers. We will never know.
What is clear is that the sands appeared to have shifted. To the extent it ever did oppose the non-compete in principle and practice, the common law was certainly now more willing to embrace it. Nordenfelt was an extreme example on the facts and even it passed the test. The law in 1894 seemed to twist itself into knots to permit what would have, on any reasonable reading of a global, 25-year non-compete imposed by Goliath on David, surely made Hull J in Dyer’s Case declare to heaven and ready the executioner.
The shift of priorities in an age of Empire, the corporation and ever-globalising markets – but also in the age of John Stuart Mill and the rights of the individual[9] – is best revealed by Lord Watson in Nordenfelt who declared, without any apparent reservation:
“…it must not be forgotten that the community has a material interest in maintaining the rules of fair dealing between man and man. It suffers far greater injury from the infraction of these rules than from contracts in restraint of trade”.
Two observations come to mind. First, if Lord Watson had read Mill’s On Liberty to inform his views of the freedom of the individual, his copy of Mill’s feminist tract, The Subjugation of Women, must have lain dust-covered and unopened. Second (and admittedly more relevant to the current discussion), he proceeds from a rather obvious fiction that besets non-competes even today, namely the questionable premise that both employee and employer start their ‘negotiations’ (if indeed the terms are even open for discussion) with an equality of arms.
The freedom to contract – or the “rules of fair dealing between man and man” – must, surely, presuppose the freedom of a party to negotiate, or in some way bargain for, the terms of any restraint that will be imposed on them? The law then, as now, largely ignored the realities of a lack of equal bargaining power between David and Goliath. Instead, it conveniently leapfrogged (or sidestepped?) it and moved on to its considerations of what constituted the public interest.
It is one thing to conclude that denying competition between the large company and Mr Nordenfelt’s new one-man-band arms dealing outfit does not injure the public interest. It is quite another to ignore the inevitable consequence that, in upholding such a broad non-compete as in this case, competition between the large company and any smaller, start-up competitors would be difficult if not impossible. By Their Lordships’ reasoning, the balance appears to be squarely on the side of the large company against the party who had little or no real choice whether he agreed to the bargain in question.
Of course, it is hard to say whether the court would have decided differently had Mr Nordenfelt not been the recipient of £17million[10] in exchange for his company and agreeing to the global non-compete. Would the court have viewed the test differently if the plaintiff had been a lower-level employee who had gained little-to-no benefit or consideration? We will never know.
However, we can say this – there is certainly nothing obvious from its judgment to suppose that the court would not have still been sympathetic to the company’s general commercial interests over-and-above the onerous restrictions placed on Mr Nordenfelt for a span of 25 years.
Where does the story go from here?
Subscribing as I do to the fictional President Barlett’s mantra that anything after 1950 is not history but television, I need not plod through the law as it developed in the 20th century to today. That is a post for another day.
In 1894, you would have been forgiven for believing that little David had an uphill climb against Goliath Inc. However, as any primary school student of history knows, despite the odds and when the battle was over David had pulled it out of the bag against the mighty giant.
Last week, President Biden signed an Executive Order which may commentators see as the beginning of a new epoque in the history of the non-compete on that side of the pond. Only time will tell what twists and turns the tale will take in this jurisdiction. We might well be turning the page to start a new chapter…
[1] Year-Book 2 Hen. V, 5B (1414)
[2] “…et per Dieu se le plaintiff fuit icy il irra al prison tanque il ust fait fine au Roy”. The legal historian Maitland has suggested that the Year Books recording early precedents were likely written by law students and not officially checked or sanctioned by the courts so, despite its infamy, who knows whether Hull J ever uttered these exact words.
[3] By this time, Westminster Hall played host to all the superior courts in a sort of messy hotchpotch. Magna Carta’s cl.17 had settled that the common pleas must not “follow the King” but should sit in a “certain place”, which did not mean a permanent place but did mean that it had to be predictable. Through time, this increasingly meant Westminster. The Great Hall at Westminster (almost identical in 1414 as today) contained the King’s Bench (sitting near the great staircase at the far end), Court of Chancery (near the King’s Bench but divided by steps) and the Court of Common Pleas (on the west side, near the door). The Court of Exchequer sat in a nearby room down a passageway. None of the ‘Hall courts’ had walls dividing them but were open to the rest of the business and thoroughfare of the Hall, including shopkeepers, suitors and everyday tourists. Each court was delineated only by a wooden bar at which the advocates stood with speakers and Judges regularly having difficulties hearing argument over the general din. Worst of all, counsel had nowhere to sit.
[4] Clerk v. Taylors of Exeter, 3 Lev. 241 (1685)
[5] 1 Peere Wins. *181 (1711).
[6] Aptly styled since his infamous career also prematurely foundered.
[7] The English Common Law Concerning Monopolies (Chicago Law Review, Vol. 21)
[8] [1894] App. Cas. 535
[9] “The sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection. That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.” On Liberty, J.S. Mill (1869, 4th Ed.)
[10] In today’s money (£200,000 in 1894)
This post was written by Jeremy McKeown, a tenant of 12KBW.
employment & discrimination 