25 March 2022
A solicitor was prevented from joining a competitor of her previous employer after the High Court decided that the 12 month non-compete restriction in her service agreement was enforceable.
Non-compete clauses are usually considered to be more difficult to enforce than other restrictive covenants, such as non-dealing and non-solicitation, which prohibit the departing employee from poaching employees or approaching clients. This is because non-competes restrict the employee’s ability to work at all and prevent them from earning a living. However, they are considered necessary by employers seeking to protect commercially sensitive information from getting into the hands of a competitor, where a lesser form of restriction would be inadequate or difficult to police. If the non-compete restriction goes no further than reasonably necessary to protect the employer’s legitimate business interests, a court can enforce them.
In this case, the solicitor was a shareholder of the firm as well as an employee and had signed a shareholder agreement which contained a non-compete restriction. In 2021, she was offered a significant pay rise subject to her agreeing a new service agreement, which also contained a non-compete restriction. The distinction between the two restrictions was that in the shareholder agreement, the restriction prevented the solicitor from working for any business which competed, directly or indirectly, with a business of her current employer in the same territory in the 12 months prior to her leaving. The restriction in the contract of employment prevented the solicitor from working for any business which was (or intended to be) in competition with the parts of her current employer’s business which she had been materially involved in in the 12 months prior to her leaving.
Soon after accepting the pay-rise and the new service agreement, the solicitor was offered a senior role with a much larger business in direct competition with her current employer and resigned. Her current employer sought to prevent her from joining the competitor firm by invoking the 12 month non-compete restrictions in her service agreement and shareholder agreement. It considered this was a real threat to their business given the commercially sensitive information the solicitor knew and the personal contacts and connections with its clients she had.
The Court decided the restriction in the shareholder agreement was too wide because it sought to prohibit the solicitor from working in competition with any business her previous employer was involved in, whether or not the solicitor had any role or involvement in that part of the business and could have access to commercially sensitive information or client contacts. It was not enforceable.
In contrast, the non-compete restriction in the service agreement she had signed only prohibited the solicitor from working for a business which was in competition with the parts of her previous employer’s business she had been materially involved in. The court decided this went no further than reasonably necessary for the protection of the firm’s legitimate business interests - its commercially sensitive information such as client contacts, pricing and targeted training plans which the solicitor had regular access to and involvement with. 12 months covenant length was also considered reasonable as this is how long it would reasonably take the employer to replace the solicitor and reflected the shelf life of the confidential information she had. The 12 month non-compete restriction in the service agreement was enforceable.
At a time when employees are moving jobs now more than ever for better pay and benefits, it is a timely reminder that employers can protect themselves from threats to their business from departing employees so long as the restrictive covenants in their employment contracts are drafted carefully and reasonably. Employers should regularly review their employment contracts to ensure they are fit for purpose. Whilst changes to existing employees’ employment contracts to introduce new restrictive covenants will require the employee’s agreement, this can be achieved at times of pay rises or promotions as was the case here.
To discuss how our employment legal team can help you with employment contracts and service agreements, please contact Charlie Barnes.