In the recent case of Merlin Financial Consultants v Cooper [2014] EWHC 1196 (QB) the court upheld a “non-compete” restrictive covenant for one year thus preventing the former employee from practising as a financial adviser in competition with his former employer during that time.
Background
The facts of this case are materially relevant to the decision. At the point at which the defendant had joined the claimant company, he had been paid a sum equivalent to a percentage of the investment funds which he had transferred to the claimant. He was being paid for his “goodwill”.
In return for this, the defendant had agreed to enter into a post-termination restrictive covenant to last for one year after termination of his employment which would require him not to compete with the employer “in any part of the United Kingdom”. At the same time he had entered into an employment contract which contained restrictive covenants preventing him from competing with the claimant for six months after the employment.
The defendant had joined the claimant in April 2012 but by November 2012 had decided to leave again to set up his own business advising that he intended to continue working with some of his former clients.
Decision
The court upheld the claim to enforce the non-compete restrictive covenant in the goodwill agreement on the basis that this was a covenant contained in an agreement for the sale of his business. In doing so, the court did not apply the considerations which would otherwise have applied if the covenant had simply been contained in his employment contract. If reliance had been placed solely in the covenants in the employment contract it is unlikely that they would have been regarded as reasonable and enforceable because they had the effect of preventing him from carrying out his trade at all within the United Kingdom. However, where the covenants are imposed in an agreement involving the sale of a business, the courts are more prepared to enforce stricter covenants.
Related Articles
- Date for assessing the reasonableness of a restrictive covenant (January 2013)
- Interpreting Restrictions on a departing director (November 2013)
- Enforcing a Garden Leave Provision (January 2014)
- Enforcing Restrictive Covenants (February 2014)
- Amending Restrictive Covenants (April 2014)