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Case law: Nine-month non-compete clause in employee's contract can be reasonable

Employers should ensure non-compete and similar clauses in an employee's contract are reasonable in the circumstances; and consider any periods during which an employee is denied access to clients while still employed when assessing whether the duration is justified - or risk the clauses being unenforceable.

Legal Alert

This update was published in Legal Alert - June 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

An inter-dealer broker was initially employed at a junior level, but rapidly promoted. After a year, he signed a contract of employment. This restricted him from competing with his employer for six months after leaving, and allowed his employer to put him on garden leave while still employed. The contract stated that any garden leave would not be set off against the six months non-compete period unless it lasted more than three months. So, if garden leave did not last more than three months, he could effectively be prevented from competing against his employer for nine months.

He gave notice and his employer decided not to put him on garden leave. Instead, he was given administrative work for three months, during which his client contact was restricted.

He then left, and three months later started working for a competitor. His employer applied for an injunction to require him to comply with the restrictions.

He argued that restricting him for a total of nine months was unreasonable, and that a
post-termination restriction of three months' duration would have been all that was reasonably necessary for the protection of the business's legitimate interests.

The law says that a restriction will only be enforced if:

  • It is clear what it means
  • The employer can show a legitimate business interest requiring protection
  • It is no wider than is reasonably necessary for the protection of those interests (given the circumstances when the restrictions were agreed)

The High Court noted that the employee was a member of a small community of business people, in which personal relationships with clients were key. It therefore ruled that a 9-12 month non-compete clause was justifiable given the employer's need to safeguard client relationships when the employee left, and to find a replacement employee. The particular clause in this case was not therefore unreasonable.

The employee's argument that he had been taken advantage of was rejected on grounds he was highly educated, well qualified, and had been employed for a year before he had been asked to sign the contract containing the restrictions.

Operative date

  • Now

Recommendation

  • Employers should ensure that non-compete and other restrictive clauses in an employee's contract are reasonable in the particular employee's circumstances, and take into account any garden leave that can be imposed on the employee before they leave, or risk the clauses being unenforceable

Case ref: Tradition Financial Services v Gamberoni & Others [2017] EWHC 768

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.