Restrictive covenants in employment contract too wide to be enforceable

Contract of employment example

In the case of Quilter Private Client Advisers Ltd (the company) v Falconer (the employee) and another, the High Court found that the nine-month non-compete clause and 12-month non-solicitation and non-dealing clauses in the financial adviser’s contract of employment were too wide to be enforceable.

The employee in this case had joined the company as a financial adviser, taking over from a financial adviser who was retiring. She resigned with two weeks’ notice while on her probationary period and was placed on gardening leave for that time. She later joined one of the company’s competitors as an independent contractor.

The High Court found that the employee had breached her contract of employment by:

• Failing to show the restrictive covenants in her contract to her new employer;
• Scanning confidential client documents to her own computer with the aim of soliciting clients and concealing this from the company;
• Attending an induction course with her new employer during working hours;
• Contacting the company’s clients during her gardening leave without permission.

However, the court found that the non-competition clause and non-solicitation and non-dealing clauses were too wide to be enforceable. The decisive factors were:

• The non-compete clause prevented the employee from competing across to the whole of the UK and not just within the territory she covered;
• The company could not show that the stated objectives of the non-compete clause could not be achieved with a non-dealing clause;
• The non-solicitation and non-dealing clauses restricted the employee from soliciting anyone:
  • Who had been a client in the 18 months prior to termination;
  • Who had transferred their business elsewhere at the time of termination;
  • Who had been a client who was transferred to her but whom she had never met.

This case demonstrates the contrast between the ease of enforcing contractual restrictions on what an employee can do while still employed versus the uphill struggle employers face in persuading course-to-enforce restrictions on what employees can do once they have left.

Courts will allow employers to protect their legitimate business interests from employees’ post- employment activities, but only if the restrictions are no wider than necessary to protect those interests.

In the reported case, for example, some things the company could have done to give the restrictions a greater chance of enforceability are:

• Ensure that the clause reflected the threat of the employee signing realistically posed to the interests the company wanted to protect;
• Limit geographical scope of the clauses;
• Limit the restriction to current clients and prospects with whom the employee had material dealings;
• Consider reducing the duration of the restrictions;
• Give greater consideration to whether it really needed a non-compete clause or whether the non-solicitation clause/non-dealing clause would achieve the same objective and the reasons why it took that view. Non-compete clauses are always more difficult to enforce so employers should be able to give strong justification for why a non-compete clause is required.

How we can assist

Moore Kingston Smith People Advisory drafts contracts of employment for employees at all levels of seniority. Should you require post-termination restrictions to help protect your business or want your current restrictions reviewed or amended to ensure that they have the best possible chance of being enforceable please call us on 01708 758 958.