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Post-termination restrictive covenants and enforceability

Employers often use post-termination restrictive covenants in employment contracts to protect their business in the event an employee leaves. These are often in the form of non-compete clauses, preventing the employee from working in competition for a period of time, and non-solicitation and non-dealing clauses which prevent the employee from approaching or dealing with clients of the business for a period of time.

A restrictive covenant is unenforceable unless it protects a legitimate business interest and goes no further than is reasonably necessary to protect that interest.

In the recent case of Quilter Private Client Advisers Ltd v Falconer and another [2020] EWHC 3294 (QB) the first defendant joined Quilter and was subject to nine-month non-compete and 12-month non-solicitation and non-dealing covenants. She left the company after six months, while still in her probationary period and obliged to give only two weeks’ notice. Quilter claimed for breach of contract against her, alleging, amongst other things, that she had contacted clients in breach of her restrictive covenants.

The High Court held that the non-compete, non-solicitation and non-dealing clauses were invalid as a restraint of trade, due in part to the fact that restrictive covenants must be assessed for reasonableness at the time they are entered into. The clauses in question effectively restricted the first defendant for nine months, despite the fact that she had worked there for a short period of time, and had little opportunity to establish relationships with clients.

The Court also noted that the Head of Quilter, who had access to much more confidential information (albeit not the same client relationships as the advisers), was only subject to six-month restrictions.

This case demonstrates that employers should be wary of issuing one size fits all restrictive covenants. The restrictive covenants which are relevant to upper management may not be suitable for junior levels. The Court also highlighted the need for employers to consider the scenario in which an employee leaves the business after a short period. A restrictive period which may be suitable for an employee who has established relationships with clients may not be relevant immediately. Employers are well advised to consider tailoring restrictive covenants to the employee, considering implementing restrictive covenants after an initial period of employment, and always remember to reassess restrictive covenants on a promotion.

If you would like help or advice as to how to proceed in the circumstances set out above, we are here to assist and advise. Please contact  Wendy Davidson

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