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HCR Law Events

18 June 2021

Top tips to ensure your restrictive covenants are enforceable

The case of Quilter Private Client Advisers Ltd v. Falconer and another [2020] EWHC 3294 (QB) in the financial services sector highlights the importance of ensuring your restrictive covenants are enforceable when an employee departs and takes your clients with them.

In this case, the employee’s contract contained a nine-month non-compete clause, and 12-month non-dealing and non-solicitation clauses. The court ruled these clauses to be unreasonable. Consequently, they were unenforceable.

Quilter had recruited the employee to take over from a departing financial advisor, which involved taking on a ready-made book of 181 clients. However, the employee was unhappy and left to join a competitor six months into her contract.

Quilter brought a breach of contract claim and sought to enforce her restrictive covenants, asserting that the employee had taken confidential information, breached her duty of fidelity, and contacted clients during her garden leave in breach of the express terms of her employment contract.

The court held that the non-compete, non-solicitation and non-dealing clauses were invalid under the restraint of trade doctrine. Had they been valid, the court commented, the employee would have been in breach of them all.

Top tips for ensuring your restrictive covenants are enforceable:

  • When drafting restrictive covenant clauses, keep in mind what legitimate interest you are trying to protect.
  • Make sure the clause goes no further than necessary to protect the legitimate interest.
  • Ensure the clause is reasonable at the time it is entered into.
  • Do not apply a one size fits all approach – make the clause suitable for the employee and/or situation.
  • Consider separate (more limited) covenants for the probation period, followed by more robust clauses later in the employment.
  • Ensure the length of the employee’s notice period and the duration of restraint correspond. A court would use the period of notice as an indication of reasonableness for the restraint. The shorter the notice, the less important the employee’s service would appear to be to the employer.
  • Rather than seeking to prevent competition, the restrictions should be seeking to protect confidential information and client relationships.
  • Consider carefully whether you need a non-compete clause or whether you have sufficient protection by relying upon other restrictive covenants i.e. non solicitation and non-deal. If you do include a non-compete clause, ensure it is as narrow as possible.

 

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About the Author
Jenny Raymond, Partner

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