Post-termination restrictive covenants found to be in restraint of trade


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The High Court has found in Quilter Private Client Advisers Ltd v Falconer and anor that non-compete, non-solicitation and non-dealing clauses in a financial adviser's employment contract were an unreasonable restraint of trade.

The first defendant, EF, joined Quilter as a financial adviser.  Her contract contained a whole time and attention clause, confidentiality obligations and a garden leave clause, as well as a nine-month non-compete and 12-month non-solicitation and non-dealing covenants. After less than 6 months at Quilter EF decided to move to Continuum as a self-employed independent financial adviser. She was still in her probationary period and Quilter placed her on garden leave for her two week notice period.

Quilter brought a breach of contract claim against EF and sought an interim injunction to enforce her restrictive covenants. It alleged that she had not devoted her whole time and attention to her work, had taken confidential information, breached her duty of fidelity and contacted clients during her garden leave in breach of her employment contract.  An interim injunction was granted.

When the case came to full trial the High Court found that EF had breached her contract in a number of different ways and that, had the restrictive covenants been valid, she would have been in breach of all of them.  

The non-compete clause sought to prevent EF from competing with EF for nine months after termination. The 9-month duration applied regardless of how long EF had worked for Quilter. Her contract provided for a six-month probation period and for dismissal on two weeks' notice during that period. In other words the contract provided for a situation where EF may only have been employed for a very short period but where she would still be bound by a nine-month restriction. The Court noted that this was unreasonable as EF's relationships with clients would have taken time to become established. The clause also sought to prevent EF from working in competition with Quilter for clients who had never been clients of Quilter. The Court was critical of a geographical carve-out which would have allowed EF to work in any part of the country where Quilter did not operate, but was of no practical effect as Quilter was a nationwide business.  

The non-dealing covenant lasted 12 months from termination and sought to prevent EF from supplying the financial services she had been materially concerned with in the 12 months prior to termination to any customer who had been a client of Quilter during the 18 months prior to termination. The non-solicitation covenant was similar in scope. The Court was critical of the 18 month restriction and, since Quilter was unable to offer any justification, held that the covenants went further than necessary.  

Take note: The decision in Quilter shows the importance of tailoring restrictive covenants to the individual employee they relate to. Here the restrictions were not suitable for a relatively junior employee who had left after a very short period of employment and had no opportunity to develop a longstanding relationship with the employer's clients.  It may also be worth considering whether it's appropriate to provide for shorter and more limited covenants where, as was the case here, an employee is on their probationary period.

While on the topic of restrictive covenants, the Department for Business, Energy and Industrial Strategy (BEIS) issued a consultation last month on measures to reform post-termination non-compete restrictive covenants in employment contracts. The consultation closes on 26 February. 

BEIS is considering two things. First, altering the law so that post-termination non-compete clauses are only enforceable if the employer continues paying remuneration during the restricted period (i.e. mandatory compensation). However, they have also asked for comments as to whether this should be extended to other post-termination restrictions, such as non-solicitation/non-poaching clauses. Second, banning post-termination non-compete clauses completely. They have also asked for comments as to whether this should be extended to other post-termination restrictions, such as non-solicitation/non-poaching clauses. 

We've put together a short survey which we will use as part of a response to the BEIS consultation and would be very grateful if you could spare a few minutes to answer the following questions here.
 
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