Generally, any post-termination restrictive covenant that attempts to stop or restrict any employee from seeking employment elsewhere, is prima facie unenforceable unless proved to be fair, reasonable and necessary. This case highlights the problems associated with short service and short notice provisions when enforcing a covenant.
Quilter Private Client Advisers Ltd v Falconer 2020
The High Court found that the ‘post termination restrictions clauses’ contained in Falconer’s employment contract were an unreasonable restraint on trade and therefore void and unenforceable.
In 2019, Falconer joined Quilter as a financial adviser and was unhappy in her employment, citing her dissatisfaction with the administrative support she was receiving and the restriction on the products she could recommend to clients. Her contract of employment contained a 9 month non-compete, 12-month non-dealing/solicitation clauses, a 6 month probation and 2-week notice period to terminate. She resigned during her probationary period with notice which was spent on garden leave. She then joined a rival firm soon after.
Quilter were fully aware that she had joined a competitor, they waited 4 months to enforce these covenants when they realised she was dealing with her former clients. Quilters claim was for £39,000 damages, but the real issue was the liability for their legal costs of £500,000.
The court ruled that the non-compete, non-solicitation clauses were not necessary to protect their interests and therefore invalid because;
- Quilter accepted that it could take up to 12 months to build strong business relations – she did not build up that relationship. Having access to the client list in itself did not forge that relationship.
- The 6-month probationary period with a 2 week notice meant it was reasonably foreseeable that her employment could end after a short period of time, during which time she may have had little opportunity to build client relationships.
- A 2-week notice indicated a low perceived need for protection. The shorter the notice, the lower the perceived needs of the employee’s services, and generally indicated a junior capacity.
- More senior employees had the same or shorter restrictions despite having greater access to the clients. This suggested that Quilter had adopted a “one size fits all” approach.
- The court felt that evidence suggested that the non-compete clause was not standard in the industry, supporting the argument that it was unreasonable.
- As Quilter had delayed their enforcement of the breaches, this was an acceptance that they did not consider these restrictions to be necessary.
To be enforceable, the clauses must not be too wide and must be reasonable. The court felt that upholding the restrictions would prevent a consumer from dealing with a financial advisor of their choice. This would breach the regulatory obligation to act in the best interests of the client. However, a reasonably worded clause(s) can be enforceable and so outweigh the public interest. Accordingly, they accepted that Falconer had solicited two clients, but as the clauses were deemed to be too wide, it proved to be irrelevant.
Lessons to Learn
Avoid using restrictive covenants in a “one size fits all” manner and instead consider the reasonableness against the employee’s role and level within the business.
Consider the reasonableness and the enforceability of any restrictions.
Employers should consider a range of different options including, as was the case here, an employee leaving after a very short period of employment. It is arguably reasonable to enforce a 9-month restriction on an employee who has worked somewhere for a long period of time and developed strong business relationships with clients, whereas it is clearly less likely when compared to a new starter, employed for a short period of time, who has not yet developed those client relationships.
Employers should consider using limited restrictions which apply during an initial period, such as a probationary period, having regard to the employee’s exposure to clients, and provide for more stringent restrictions thereafter.
(Source RIAA Barker Gillett)
